Q2 2026 Brown Forman Corp Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Brown-Forman Corp Second Quarter and First Half of Fiscal 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sue Parham, Vice President and Director of Investor Relations. You may begin.

Speaker #1: At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone.

Speaker #1: You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your first speaker today, Sue Perram, Vice President, Director of Investor Relations. You may begin.

Sue Perram: Thank you, and good morning, everyone.

Speaker #2: Thank you, and good morning, everyone. I would like to thank each of you for joining us today for Brown-Forman's second quarter and first half of fiscal year 2026 earnings call.

Operator: I would like to thank each of you for joining us today for Brown-Forman's second quarter and first half of Fiscal Year 2026 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leanne Cunningham, Executive Vice President and Chief Financial Officer. This morning's conference call contains forward-looking statements based on our current expectations. Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements, and except as required by law, the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise.

I would like to thank each of you for joining us today for Brown-Forman's second quarter and first half of Fiscal Year 2026 earnings call. Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leanne Cunningham, Executive Vice President and Chief Financial Officer. This morning's conference call contains forward-looking statements based on our current expectations. Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict. You should not place undue reliance on any forward-looking statements, and except as required by law, the company undertakes no obligation to update any of these statements, whether due to new information, future events, or otherwise.

Speaker #2: Joining me today are Lawson Whiting, President and Chief Executive Officer, and Leanne Cunningham, Executive Vice President and Chief Financial Officer. This morning's conference call contains forward-looking statements based on our current expectations.

Speaker #2: Numerous risks and uncertainties may cause actual results to differ materially from those anticipated or projected in these statements. Many of the factors that will determine future results are beyond the company's ability to control or predict.

Speaker #2: You should not place undue reliance on any forward-looking statements, and accept as required by law, the company undertakes no

Speaker #1: We issued a press release containing our the second results for quarter and first half of fiscal year 2026 . In addition to posting presentation materials that Lawson and Leanne will walk through momentarily , both the release and the presentation can be found on our website under the section titled Investors , Events and Presentations in the press release , we have listed a number of the risk factors you should consider in conjunction with our forward looking statements .

Operator: This morning, we issued a press release containing our results for the second quarter and first half of fiscal year 2026, in addition to posting presentation materials that Lawson and Leanne will walk through momentarily. Both the release and the presentation can be found on our website under the section titled Investors, Events, and Presentations. In the press release, we have listed a number of the risk factors you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our 2025 Form 10-K and, from time to time, in our Form 10-Q reports filed with the Securities and Exchange Commission. During this call, we will be discussing certain non-GAAP financial measures.

This morning, we issued a press release containing our results for the second quarter and first half of fiscal year 2026, in addition to posting presentation materials that Lawson and Leanne will walk through momentarily. Both the release and the presentation can be found on our website under the section titled Investors, Events, and Presentations. In the press release, we have listed a number of the risk factors you should consider in conjunction with our forward-looking statements. Other significant risk factors are described in our 2025 Form 10-K and, from time to time, in our Form 10-Q reports filed with the Securities and Exchange Commission. During this call, we will be discussing certain non-GAAP financial measures.

Speaker #1: Other significant risk factors are described our 2025 form 10-K and from time to time in our form in . Reports filed with the Securities 10-q and Exchange Commission .

Speaker #1: During this call , we will be discussing non-GAAP financial certain measures . These measures are most directly reconciliation to the comparable GAAP financial measures and the reasons management believes they provide useful information to investors regarding the company's financial condition and results of operations are contained in the press release and investor presentation .

Operator: These measures are reconciliations to the most directly comparable GAAP financial measures, and the reasons management believes they provide useful information to investors regarding the company's financial condition and results of operations are contained in the press release and investor presentation. With that, I'd like to turn the call over to Lawson. Thank you, Sue, and good morning, everyone. I'm pleased to share our second quarter and first half of fiscal 2026 results with you today. I'll start by sharing a few comments on the operating environment and then provide the key drivers and highlights of our top-line results, including our geographic performance, strategic innovation, and the two unique headwinds Brown-Forman is currently facing. Then I'll turn it over to Leanne, who will share additional insights on other financial highlights, including gross margin and operating expenses, and our full-year fiscal 2026 outlook, which we are now reaffirming.

These measures are reconciliations to the most directly comparable GAAP financial measures, and the reasons management believes they provide useful information to investors regarding the company's financial condition and results of operations are contained in the press release and investor presentation. With that, I'd like to turn the call over to Lawson.

Speaker #1: With that, I'd like to turn the call over to Lawson.

Speaker #2: Thank you , Sue , and good morning , everyone . I'm pleased to share our second quarter and first half of fiscal with you 2026 results today .

Lawson Whiting: Thank you, Sue, and good morning, everyone. I'm pleased to share our second quarter and first half of fiscal 2026 results with you today. I'll start by sharing a few comments on the operating environment and then provide the key drivers and highlights of our top-line results, including our geographic performance, strategic innovation, and the two unique headwinds Brown-Forman is currently facing. Then I'll turn it over to Leanne, who will share additional insights on other financial highlights, including gross margin and operating expenses, and our full-year fiscal 2026 outlook, which we are now reaffirming.

Speaker #2: I'll start by sharing a few comments on the operating environment and then provide the key drivers and highlights of our top line results , including our geographic performance , innovation , strategic and the two unique headwinds .

Speaker #2: is Brown-Forman currently facing . Then I'll turn it over to Leanne , who will share additional insights on other financial highlights , including gross margin and operating expenses and our full year fiscal 2026 outlook , which we are now reaffirming .

Speaker #2: While the operating environment remains challenging and uncertain , been it has relatively consistent with our expectations and the themes from the second quarter remain largely consistent with those from the first quarter of this fiscal year .

Operator: While the operating environment remains challenging and uncertain, it has been relatively consistent with our expectations, and the themes from the second quarter remain largely consistent with those from the first quarter of this fiscal year. We believe cyclical pressures related to ongoing macroeconomic and geopolitical uncertainties continue to negatively impact consumer confidence and reduce discretionary spending in the US and many developed international markets. On the other hand, we continue to see resilient consumers in a number of our emerging international markets, where trends are generally much stronger. We expect cyclical headwinds to ease over time, while also acknowledging that we're operating in a very dynamic industry, and some current headwinds may persist over time. With that in mind, our focus remains sharply on managing the factors that weaken influence. Now, moving to our first half fiscal 2026 top-line performance.

While the operating environment remains challenging and uncertain, it has been relatively consistent with our expectations, and the themes from the second quarter remain largely consistent with those from the first quarter of this fiscal year. We believe cyclical pressures related to ongoing macroeconomic and geopolitical uncertainties continue to negatively impact consumer confidence and reduce discretionary spending in the US and many developed international markets. On the other hand, we continue to see resilient consumers in a number of our emerging international markets, where trends are generally much stronger. We expect cyclical headwinds to ease over time, while also acknowledging that we're operating in a very dynamic industry, and some current headwinds may persist over time. With that in mind, our focus remains sharply on managing the factors that weaken influence. Now, moving to our first half fiscal 2026 top-line performance.

Speaker #2: We believe cyclical pressures related to ongoing macroeconomic and geopolitical uncertainties continue to negatively impact consumer confidence and reduce discretionary spending in the U.S. and many developed international markets.

Speaker #2: On the other hand, we continue to see resilient consumers in a number of our emerging international markets where trends are generally much stronger. We expect cyclical headwinds to ease over time, while also acknowledging that we're operating in a very dynamic industry and some current headwinds may persist.

Speaker #2: With that in mind , our focus remains sharply on managing the factors that we can influence . Now , moving to our first half , fiscal 2026 top line performance .

Speaker #2: Our first half fiscal 2026 reported net sales declined 4% , with organic net sales flat after adjusting for the A and D impact .

Operator: Our first half fiscal 2026 reported net sales declined 4%, with organic net sales flat after adjusting for the A&D impact related to Korbel and Sonoma-Cutrer, which are no longer in our current portfolio. From a geographic perspective, our organic net sales results were led by the collective strength of the emerging international markets, which provided double-digit growth of 12%, and the travel retail channel, which increased 6%. While this growth was partially offset by a 6% decline in the developed international markets collectively and flat performance in the United States, it's important to note that both performance in developed international markets and the US sequentially improved from our first quarter results. Diving deeper into the emerging international markets, Mexico and Brazil continued to deliver strong double-digit growth.

Our first half fiscal 2026 reported net sales declined 4%, with organic net sales flat after adjusting for the A&D impact related to Korbel and Sonoma-Cutrer, which are no longer in our current portfolio. From a geographic perspective, our organic net sales results were led by the collective strength of the emerging international markets, which provided double-digit growth of 12%, and the travel retail channel, which increased 6%. While this growth was partially offset by a 6% decline in the developed international markets collectively and flat performance in the United States, it's important to note that both performance in developed international markets and the US sequentially improved from our first quarter results. Diving deeper into the emerging international markets, Mexico and Brazil continued to deliver strong double-digit growth.

Speaker #2: Related to Korbel and Sonoma , Cutrer , which are no longer in our current portfolio . From a geographic perspective , our organic net sales results were led by the strength of the emerging collective international markets , which provide a double digit growth of 12% in the travel retail channel , which increased 6% .

Speaker #2: Will . This growth was partially offset by a 6% decline in the international markets collectively and flat performance in the United States . It's important to note that both developed international performance and markets and the US sequentially improved from our first quarter results .

Speaker #2: deeper Diving into the emerging international markets , Mexico and Brazil continue to deliver strong double digit growth , while the economic environment in Mexico remains subdued , with consumers seeking value and down .

Speaker #2: These conditions have benefited trading our RTD portfolio , which helped fuel 18% organic net sales growth in the first half of fiscal 2026 .

Operator: While the economic environment in Mexico remains subdued, with consumers seeking value and trading down, these conditions have benefited our RTD portfolio, which helped fuel 18% organic net sales growth in the first half of fiscal 2026. New Mix, the world's first tequila-based RTD, delivered very strong double-digit growth as the brand continued to lead the category in gain share in Mexico. Our distribution of brands within the William Grant & Sons portfolio also provided incremental organic net sales. We continue to believe this complementary portfolio provides us additional strength to achieve greater development and growth of our portfolio of brands in Mexico, particularly in the on-trade, and in the super premium segment. In Brazil, our strategic approach to building the Jack Daniel's family of brands continues to produce strong results, with organic net sales growing more than 20% in the first half of fiscal 2026.

While the economic environment in Mexico remains subdued, with consumers seeking value and trading down, these conditions have benefited our RTD portfolio, which helped fuel 18% organic net sales growth in the first half of fiscal 2026. New Mix, the world's first tequila-based RTD, delivered very strong double-digit growth as the brand continued to lead the category in gain share in Mexico. Our distribution of brands within the William Grant & Sons portfolio also provided incremental organic net sales. We continue to believe this complementary portfolio provides us additional strength to achieve greater development and growth of our portfolio of brands in Mexico, particularly in the on-trade, and in the super premium segment. In Brazil, our strategic approach to building the Jack Daniel's family of brands continues to produce strong results, with organic net sales growing more than 20% in the first half of fiscal 2026.

Speaker #2: New mix the world's first tequila based RTD delivered very strong double digit growth as the brand continued to lead the category and gain share in Mexico .

Speaker #2: Our distribution of brands within the William Grant and Sons portfolio also provided incremental organic net sales . We continue to believe this complimentary portfolio provides us additional strength to achieve greater development and growth of our portfolio of brands in Mexico , particularly in the on trade and in the super premium segment in Brazil .

Speaker #2: Our strategic approach to building the Jack Daniel's family of brands continues to produce strong results, with organic net sales growing more than 20% in the first half of fiscal 2026.

Speaker #2: Jack Daniel's Tennessee Apple and Jack Daniel's Tennessee Whiskey led the growth and gained share as we continued to expand our geographic reach , increased distribution , and leverage our revenue growth management capabilities .

Operator: Jack Daniel's Tennessee Apple and Jack Daniel's Tennessee Whiskey led the growth and gain share as we continued to expand our geographic reach, increase distribution, and leverage our revenue growth management capabilities. In addition, as we mentioned last quarter, we believe premiumization is an opportunity in Brazil, and we continue to focus on increasing distribution for our super premium whiskey portfolio. The global travel retail channel delivered organic net sales growth of 6% in the first half of fiscal 2026, with growth in most of the major regions as passenger numbers continued to increase, surpassing pre-pandemic levels. The travel retail channel is not only a growth contributor but also a critical brand-building platform. As we shared during our recent investor day, the global Jack Daniel's campaign, "That's What Makes Jack Jack," has launched in select international airports to position us to reach consumers on this global stage.

Jack Daniel's Tennessee Apple and Jack Daniel's Tennessee Whiskey led the growth and gain share as we continued to expand our geographic reach, increase distribution, and leverage our revenue growth management capabilities. In addition, as we mentioned last quarter, we believe premiumization is an opportunity in Brazil, and we continue to focus on increasing distribution for our super premium whiskey portfolio. The global travel retail channel delivered organic net sales growth of 6% in the first half of fiscal 2026, with growth in most of the major regions as passenger numbers continued to increase, surpassing pre-pandemic levels. The travel retail channel is not only a growth contributor but also a critical brand-building platform. As we shared during our recent investor day, the global Jack Daniel's campaign, "That's What Makes Jack Jack," has launched in select international airports to position us to reach consumers on this global stage.

Speaker #2: In addition, as we mentioned last quarter, we believe premiumization is an opportunity in Brazil, and we continue to focus on increasing distribution for our super premium whiskey portfolio.

Speaker #2: The global travel retail channel delivered organic net sales growth of 6% in the first half of fiscal 2026, with growth in most of the major regions as passenger numbers continued to surpass pre-pandemic levels.

Speaker #2: The travel retail channel is not only a growth contributor , but also a critical building brand platform . As we shared during our recent Investor Day , the global Jack Daniel's campaign .

Speaker #2: That's what makes Jack . Jack has launched in select international airports to position us to reach consumers on this global stage . Turning to our developed consumer markets , sentiment and confidence both remain pressured in most European economies , creating a difficult operating environment .

Operator: Turning to our developed markets, consumer sentiment and confidence both remain pressured in most European economies, creating a difficult operating environment. While the outlook remains challenging, we are maintaining or gaining share of the whiskey category in six of our eight top European markets. In the UK, economic conditions are negatively impacting consumer spending and total distilled spirits trends in both the on- and off-premise. Organic net sales declined 13% as we lacked tougher comparisons in the year-ago period related to wholesaler and key retailer buying patterns. While off-premise takeaway trends for total distilled spirits, as well as the whiskey category, are in low single-digit decline, the trends have improved slightly, and Jack Daniel's Tennessee Whiskey continues to gain market share. Organic net sales declined 8% in Germany, where, similar to the UK, consumers have been impacted by challenging economic conditions.

Turning to our developed markets, consumer sentiment and confidence both remain pressured in most European economies, creating a difficult operating environment. While the outlook remains challenging, we are maintaining or gaining share of the whiskey category in six of our eight top European markets. In the UK, economic conditions are negatively impacting consumer spending and total distilled spirits trends in both the on- and off-premise. Organic net sales declined 13% as we lacked tougher comparisons in the year-ago period related to wholesaler and key retailer buying patterns. While off-premise takeaway trends for total distilled spirits, as well as the whiskey category, are in low single-digit decline, the trends have improved slightly, and Jack Daniel's Tennessee Whiskey continues to gain market share. Organic net sales declined 8% in Germany, where, similar to the UK, consumers have been impacted by challenging economic conditions.

Speaker #2: While the outlook remains challenging , we are maintaining or share of the whiskey gaining category in six of our eight top European markets .

Speaker #2: In UK , economic the conditions are negatively impacting consumer spending and total spirits . Trends in both the on and off premise organic net sales declined 13% as we lapped tougher comparisons ago in the year period related to wholesaler and key retailer buying patterns , while off premise takeaway trends for total distilled spirits , as well as the whiskey category are in low single digit decline .

Speaker #2: The trends have improved slightly and Jack Daniel's Tennessee whiskey continues to gain market share . Organic net sales declined 8% in Germany , where , similar to the UK , consumers have been impacted by challenging economic conditions .

Speaker #2: This has led to higher rates of saving , softening of total distilled spirits , trends and an increase in competitive promotional activity . Despite the operating environment , our super premium brands Diplomatico , Rum , gentleman Jack and Woodford Reserve delivered double digit growth in the first half of fiscal 2026 , the last market I'll focus on today is the United States total Distilled Spirits .

Operator: This has led to higher rates of saving, softening of Total Distilled Spirits trends, and an increase in competitive promotional activity. Despite the operating environment, our super premium brands, Diplomático Rum, Gentleman Jack, and Woodford Reserve, delivered double-digit growth in the first half of Fiscal 2026. The last market I'll focus on today is the United States. Total Distilled Spirits trends have decelerated but continue to decline at a low single-digit rate, as consumers are pressured to make their dollar stretch further. Even in this environment, we continue to close the gap with TDS, and organic net sales were flat in the first half of Fiscal 2026. These results continue to be ahead of our depletion-based results, as well as takeaway trends driven by the powerful combination of our US distributor changes and the launch of Jack Daniel's Tennessee BlackBerry.

This has led to higher rates of saving, softening of Total Distilled Spirits trends, and an increase in competitive promotional activity. Despite the operating environment, our super premium brands, Diplomático Rum, Gentleman Jack, and Woodford Reserve, delivered double-digit growth in the first half of Fiscal 2026. The last market I'll focus on today is the United States. Total Distilled Spirits trends have decelerated but continue to decline at a low single-digit rate, as consumers are pressured to make their dollar stretch further. Even in this environment, we continue to close the gap with TDS, and organic net sales were flat in the first half of Fiscal 2026. These results continue to be ahead of our depletion-based results, as well as takeaway trends driven by the powerful combination of our US distributor changes and the launch of Jack Daniel's Tennessee BlackBerry.

Speaker #2: Trends have decelerated but continue to decline at a low single-digit rate as consumers are pressured to make their dollar stretch further.

Speaker #2: Even in this environment , we continue to close the gap with TDs and organic net sales were flat in the first half of fiscal 2026 .

Speaker #2: These results continued to be ahead of our depletion based results , as well as takeaway trends driven by the powerful combination of our U.S.

Speaker #2: distributor changes and the launch of Jack Daniel's Tennessee BlackBerry . With distributor transitions . Now complete , turned our we have focus from transition to execution , especially during the important holiday season .

Operator: With distributor transitions now complete, we have turned our focus from transition to execution, especially during the important holiday season. Two key objectives for the transitions were increased distributor investment funds and improved margin structure, and I'm pleased to see these two areas contributing positively to organic net sales results. Increased dedication and focus from our distributor partners was another goal of our Route-to-Consumer transformation in the US and has driven increased distribution for Jack Daniel's Tennessee Whiskey, as well as Jack Daniel's Tennessee Honey, Fire, and Apple. The launch of Jack Daniel's Tennessee BlackBerry continued to exceed expectations as we progressed through the first half of Fiscal 2026. As we shared during our investor day in October, BlackBerry is getting wonderful feedback and buzz from distributors, retailers, consumers, both new and existing, and the media.

With distributor transitions now complete, we have turned our focus from transition to execution, especially during the important holiday season. Two key objectives for the transitions were increased distributor investment funds and improved margin structure, and I'm pleased to see these two areas contributing positively to organic net sales results. Increased dedication and focus from our distributor partners was another goal of our Route-to-Consumer transformation in the US and has driven increased distribution for Jack Daniel's Tennessee Whiskey, as well as Jack Daniel's Tennessee Honey, Fire, and Apple. The launch of Jack Daniel's Tennessee BlackBerry continued to exceed expectations as we progressed through the first half of Fiscal 2026. As we shared during our investor day in October, BlackBerry is getting wonderful feedback and buzz from distributors, retailers, consumers, both new and existing, and the media.

Speaker #2: Two key objectives for the transitions were increased distributor , investment funds and improved margin structure . And I'm pleased to see these two areas contributing positively to organic net sales results .

Speaker #2: Increased dedication and focus from our distributor partners was another goal of our route to consumer transformation in the U.S., and has driven increased distribution for Jack Daniel's Tennessee Whiskey, as well as Jack Daniel's Honey, Tennessee Fire, and Apple.

Speaker #2: The launch of Jack Daniel's Tennessee continued to BlackBerry exceed expectations as we progress through the first half of fiscal 2026 . we share As during our Investor Day in October , BlackBerry is getting wonderful feedback and buzz from distributors , retailers , consumers both new and existing .

Speaker #2: And the media. This continued excitement drove shipments to exceed depletions, though the difference between the two decreased as we moved through the first half of the fiscal year.

Operator: This continued excitement drove shipments to exceed depletions, though the difference between the two decreased as we moved through the first half of the fiscal year. We remain encouraged by the strong start in the US and are using the excitement to sustain momentum and drive consumer takeaway. As I've mentioned before, BlackBerry is a globally relevant flavor trend across food and beverage categories, and Jack Daniel's has a proven track record of leveraging our global footprint and capabilities to extend the impact of new flavor launches. We also began a phased launch of Jack Daniel's BlackBerry outside of the US in select international markets, including the UK, Germany, and France, as well as the global travel retail channel. Similar to the US, the initial response from retailers and consumers has been incredibly strong.

This continued excitement drove shipments to exceed depletions, though the difference between the two decreased as we moved through the first half of the fiscal year. We remain encouraged by the strong start in the US and are using the excitement to sustain momentum and drive consumer takeaway. As I've mentioned before, BlackBerry is a globally relevant flavor trend across food and beverage categories, and Jack Daniel's has a proven track record of leveraging our global footprint and capabilities to extend the impact of new flavor launches. We also began a phased launch of Jack Daniel's BlackBerry outside of the US in select international markets, including the UK, Germany, and France, as well as the global travel retail channel. Similar to the US, the initial response from retailers and consumers has been incredibly strong.

Speaker #2: We remain encouraged by the strong start in the US and are using the excitement to sustain momentum and drive consumer takeaway . As I before , BlackBerry mentioned is a globally relevant flavor trend across food and beverage categories .

Speaker #2: And Jack Daniel's has a proven track record of leveraging our global footprint and capabilities to extend the impact of new flavor launches . We also began a phased launch of Jack Daniel's BlackBerry .

Speaker #2: Outside of the US , and select international markets , including the UK , Germany and France , as well as the global travel retail channel .

Speaker #2: Similar to the U.S., the initial response from retailers and consumers has been incredibly strong in the U.K. At Tesco, Jack Daniel's Blackberry was the best new launch in the spirits category, with development showing that more than half of the consumers who purchased the product were new to the spirits category.

Operator: In the UK, at Tesco, Jack Daniel's BlackBerry was the best new product development launch in the spirits category, with more than half of the consumers that purchased the product being new to the spirits category. The brand also generated a double-digit repeat purchase rate. In Germany, Amazon sold out of the Jack Daniel's BlackBerry in the pre-order shop. In France, the brand is listed in the major retailers with positive media impressions, visibility in the main aisle, and promising initial sell-through in both the off- and on-premise channels. Again, we're pleased with the early stages of the BlackBerry launch and will continue executing our strategic phased launch to support scalable and sustainable geographic expansion for the next few years. Finally, I'll briefly share an update on two headwinds that are somewhat unique to Brown-Forman.

In the UK, at Tesco, Jack Daniel's BlackBerry was the best new product development launch in the spirits category, with more than half of the consumers that purchased the product being new to the spirits category. The brand also generated a double-digit repeat purchase rate. In Germany, Amazon sold out of the Jack Daniel's BlackBerry in the pre-order shop. In France, the brand is listed in the major retailers with positive media impressions, visibility in the main aisle, and promising initial sell-through in both the off- and on-premise channels. Again, we're pleased with the early stages of the BlackBerry launch and will continue executing our strategic phased launch to support scalable and sustainable geographic expansion for the next few years. Finally, I'll briefly share an update on two headwinds that are somewhat unique to Brown-Forman.

Speaker #2: The brand also generated a double digit repeat purchase rate in Germany , sold out of the Jack Amazon Daniel's pre-order in the shop and in BlackBerry France , the brand is listed in the major retailers with positive media impressions , visibility .

Speaker #2: In the main aisle, we are seeing promising initial sell-through in both the off- and on-premise channels. Again, we're pleased with the early stages of the BlackBerry launch and will continue executing our strategic phased launch to support scalable and sustainable geographic expansion for the next few years.

Speaker #2: Finally , I'll briefly share an update on two headwinds that are unique to Brown-Forman . Many of you will recall from our previous communications that used barrel sales and the trade dispute between the US and Canada are substantial headwinds for us this fiscal year .

Operator: Many of you will recall from our previous communications that used barrel sales and the trade dispute between the US and Canada are substantial headwinds for us this fiscal year, and they significantly impacted our first half organic net sales results. Organic net sales for used barrels decreased by more than 60% as the current industry operating environment, particularly for the Scotch and Irish whiskey suppliers, continues to pressure demand and pricing. Canada's organic net sales also declined over 60% as beverage alcohol products produced in the United States continued to be off the shelves in the majority of Canadian provinces. Our much smaller non-US brands, such as Diplomático and The Glendronach, continued to deliver organic net sales growth, but they were not able to offset the decline of our brands that are produced in the US.

Many of you will recall from our previous communications that used barrel sales and the trade dispute between the US and Canada are substantial headwinds for us this fiscal year, and they significantly impacted our first half organic net sales results. Organic net sales for used barrels decreased by more than 60% as the current industry operating environment, particularly for the Scotch and Irish whiskey suppliers, continues to pressure demand and pricing. Canada's organic net sales also declined over 60% as beverage alcohol products produced in the United States continued to be off the shelves in the majority of Canadian provinces. Our much smaller non-US brands, such as Diplomático and The Glendronach, continued to deliver organic net sales growth, but they were not able to offset the decline of our brands that are produced in the US.

Speaker #2: And they significantly impacted our first half organic net sales results . Organic net sales for used barrels decreased by more than 60% as the current industry operating environment , particularly for the Scotch and Irish whiskey suppliers , continues to pressure demand and pricing .

Speaker #2: Canada's organic net sales also declined over 60% as beverage alcohol products produced in the United States continued to be off the shelves in the majority of Canadian provinces are much smaller , non-U.S.

Speaker #2: brands such as Diplomatico and the Glendronach continued to deliver organic net sales growth , but they were not able to offset the decline of our brands that are produced in the US .

Speaker #2: Overall , the first half of fiscal 2026 is unfolded largely as we anticipated , and we believe we remain positioned to achieve our full year guidance driven by a series of key actions we've been taking .

Operator: Overall, the first half of Fiscal 2026 has unfolded largely as we anticipated, and we believe we remain positioned to achieve our full-year guidance driven by a series of key actions we've been taking. These include navigating the current environment with a balanced focus on the short and long term, strengthening our portfolio of brands through strategic innovation, as well as a focus on our premium plus brands and RTDs to address consumer trends, making key route-to-consumer transitions, including the US, Japan, and Italy, and streamlining our workforce structure to increase our agility, leverage synergies, and enhance our ways of working, which we believe will enable us to fuel the growth of our brands, our business, and our people at a more rapid pace.

Overall, the first half of Fiscal 2026 has unfolded largely as we anticipated, and we believe we remain positioned to achieve our full-year guidance driven by a series of key actions we've been taking. These include navigating the current environment with a balanced focus on the short and long term, strengthening our portfolio of brands through strategic innovation, as well as a focus on our premium plus brands and RTDs to address consumer trends, making key route-to-consumer transitions, including the US, Japan, and Italy, and streamlining our workforce structure to increase our agility, leverage synergies, and enhance our ways of working, which we believe will enable us to fuel the growth of our brands, our business, and our people at a more rapid pace.

Speaker #2: These include navigating the current environment with a balanced focus on the short and long term, strengthening our portfolio of brands through strategic investments as well as innovation, as a focus on our Premium Plus brands RTDs to address consumer trends.

Speaker #2: Making key route to consumer transitions , including the US , and Japan Italy , and streamlining our workforce structure to increase our agility , leverage , synergies and enhance our ways of working , which we believe will enable us to growth of our brands .

Speaker #2: fuel the Our business and our people rapid at a more pace . I remain fully confident in the potential of Brown-Forman , our brands and our people , and I'd like to extend my thanks and appreciation to our dedicated team of employees for their resilience and commitment .

Operator: I remain fully confident in the potential of Brown-Forman, our brands, and our people, and I'd like to extend my thanks and appreciation to our dedicated team of employees for their resilience and commitment. Before I conclude my comments, I also want to provide an update on our CFO recruitment process. In August, we announced that Leanne had made the decision to retire at the end of the current fiscal year on 30 April. Our recruitment process for her successor is well underway, and as you would expect, we are being very thoughtful in our approach to ensure we select a successor who will best position Brown-Forman for the long term. With that in mind, we anticipate that the process may extend into early next calendar year.

I remain fully confident in the potential of Brown-Forman, our brands, and our people, and I'd like to extend my thanks and appreciation to our dedicated team of employees for their resilience and commitment. Before I conclude my comments, I also want to provide an update on our CFO recruitment process. In August, we announced that Leanne had made the decision to retire at the end of the current fiscal year on 30 April. Our recruitment process for her successor is well underway, and as you would expect, we are being very thoughtful in our approach to ensure we select a successor who will best position Brown-Forman for the long term. With that in mind, we anticipate that the process may extend into early next calendar year.

Speaker #2: Before I conclude my comments , I also want to provide an update on our CFO recruitment process . In August , we announced that Leanne had made the decision to retire at the end of the current fiscal year on April 30th .

Speaker #2: Our recruitment process for her successor is well underway and as you would expect , we are being very thoughtful in our approach to ensure we select a successor who will best position Brown-Forman for the long term .

Speaker #2: With that in mind , we anticipate that the process may extend into early next calendar year . In the meantime , I appreciate Leanne's continued leadership and impersonally grateful for the opportunity to continue working closely together until her replacement is on board in the next few months .

Operator: In the meantime, I appreciate Leanne's continued leadership and am personally grateful for the opportunity to continue working closely together until her replacement is on board in the next few months. With that, I'll turn the call over to Leanne. Thank you, Lawson, and good morning, everyone. As Lawson mentioned, I will provide additional insights on other financial highlights, including gross margin and operating expenses, and conclude our prepared remarks with comments on our full-year fiscal 2026 outlook. First, to our gross margin. In the first half of fiscal 2026, our reported gross profit decreased 4%, resulting in a reported gross margin of 59.5%. Our gross profit margin expanded 30 basis points due to a 190 basis points A&D benefit largely related to the conclusion of our relationship with Korbel and the absence of the prior year transition services agreement for Sonoma-Cutrer.

In the meantime, I appreciate Leanne's continued leadership and am personally grateful for the opportunity to continue working closely together until her replacement is on board in the next few months. With that, I'll turn the call over to Leanne.

Speaker #2: With that, I'll turn the call over to Leanne.

Speaker #3: Thank you . Lawson , and good morning everyone . As Lawson mentioned , I will provide additional insights on other financial highlights , including gross margin and operating expenses , and conclude our prepared remarks with comments on our full year fiscal 2026 outlook .

Leanne Cunningham: Thank you, Lawson, and good morning, everyone. As Lawson mentioned, I will provide additional insights on other financial highlights, including gross margin and operating expenses, and conclude our prepared remarks with comments on our full-year fiscal 2026 outlook. First, to our gross margin. In the first half of fiscal 2026, our reported gross profit decreased 4%, resulting in a reported gross margin of 59.5%. Our gross profit margin expanded 30 basis points due to a 190 basis points A&D benefit largely related to the conclusion of our relationship with Korbel and the absence of the prior year transition services agreement for Sonoma-Cutrer.

Speaker #3: First , to our gross margin in the first half of fiscal 2026 , our reported gross profit decreased 4% , resulting in a reported gross margin of 59.5% .

Speaker #3: Our gross profit margin expanded 30 basis points due to a 190 basis points and benefit largely related to the conclusion of our relationship with Korbel and the absence of the prior year transition Services Agreement for Cutrer .

Speaker #3: This benefit was partially offset by 110 basis points of higher costs, lower production to largely due levels. Inflation on our input costs and the timing of cost fluctuations, and 50 basis points of unfavorable price mix due to the strong growth of new lower used barrel sales.

Operator: This benefit was partially offset by 110 basis points of higher costs, largely due to lower production levels, inflation on our input cost, and timing of cost fluctuations, and 50 basis points of unfavorable price mix due to the strong growth of New Mix and lower used barrel sales. Continuing with our other financial highlights, I'll turn to our operating expenses. In the first half, organic advertising expense decreased 1%, which is largely aligned with our depletion-based top-line results. We continue to believe our level of investment behind our brands is healthy, with a focus on Jack Daniel's Tennessee Whiskey to support the "That's What Makes Jack Jack" global campaign, as well as the launch of Jack Daniel's Tennessee BlackBerry.

This benefit was partially offset by 110 basis points of higher costs, largely due to lower production levels, inflation on our input cost, and timing of cost fluctuations, and 50 basis points of unfavorable price mix due to the strong growth of New Mix and lower used barrel sales. Continuing with our other financial highlights, I'll turn to our operating expenses. In the first half, organic advertising expense decreased 1%, which is largely aligned with our depletion-based top-line results. We continue to believe our level of investment behind our brands is healthy, with a focus on Jack Daniel's Tennessee Whiskey to support the "That's What Makes Jack Jack" global campaign, as well as the launch of Jack Daniel's Tennessee BlackBerry.

Speaker #3: Continuing with our other financial highlights , I'll turn to our operating expenses in the first half . Organic advertising expense decreased 1% , which is largely aligned with our depletion based top line results .

Speaker #3: We continue to our believe level of investment behind our brands is healthy , with a focus on Jack Daniel's Tennessee Whiskey to support the .

Speaker #3: That's what makes Jack Jack global campaign , as well as the launch of Jack Daniel's Tennessee BlackBerry . As we shared during our Investor Day , the Jack Daniel's global campaign represents our largest in brand history , with the majority of fiscal expenses 2026 to occur during the key selling month of October , November and December .

Operator: As we shared during our investor day, the Jack Daniel's global campaign represents our largest in brand history, with the majority of Fiscal 2026 expenses to occur during the key selling months of October, November, and December. Our organic SG&A investment decreased 4% following our strategic workforce restructuring initiative. In total, reported operating income decreased 9%, and organic operating income decreased 4% in the first half of Fiscal 2026. In addition to the $22 million non-operating post-retirement expense related to our workforce initiatives, these results led to a 13% diluted earnings per share decrease to $0.83 per share. Before moving to our outlook, I'd like to take the opportunity to provide you with a few comments related to our capital allocation philosophy. We approach our capital deployment decisions with the core objective of sustainable long-term value creation.

As we shared during our investor day, the Jack Daniel's global campaign represents our largest in brand history, with the majority of Fiscal 2026 expenses to occur during the key selling months of October, November, and December. Our organic SG&A investment decreased 4% following our strategic workforce restructuring initiative. In total, reported operating income decreased 9%, and organic operating income decreased 4% in the first half of Fiscal 2026. In addition to the $22 million non-operating post-retirement expense related to our workforce initiatives, these results led to a 13% diluted earnings per share decrease to $0.83 per share. Before moving to our outlook, I'd like to take the opportunity to provide you with a few comments related to our capital allocation philosophy. We approach our capital deployment decisions with the core objective of sustainable long-term value creation.

Speaker #3: Our organic G&A investment decreased 4% following our strategic workforce restructuring initiative. In total, reported operating income decreased 9% and organic operating income decreased 4% in the first half of fiscal 2026.

Speaker #3: In addition to the $22 million non-operating postretirement expense related to our workforce initiatives , these results led to a 13% diluted earnings per share decrease to $0.83 per share .

Speaker #3: Before moving to our outlook , I'd like to take the opportunity to with a few provide you related to our capital allocation philosophy .

Speaker #3: We approach our capital deployment decisions with the core objective of sustainable , long term value creation . Our capital allocation philosophy balances ongoing investment in the business , including organic investments and acquisitions , alongside returns shareholder such as regular dividends , share repurchases , and special dividends .

Operator: Our capital allocation philosophy balances ongoing investment in the business, including organic investments and acquisitions, alongside shareholder returns such as regular dividends, share repurchases, and special dividends. First, in the first half of Fiscal 2026, capital expenditures decreased by $16 million compared to the year-ago period. While we continue to fully invest behind our business, we have completed a number of projects and expansions, which reduced our working capital requirements and improved cash generated. We grew cash flows from operations by $163 million to $292 million, primarily reflecting disciplined working capital management. Free cash flow, defined as net cash provided by operating activities, less purchase of PP&E, as presented in the statement of cash flows, increased by $179 million to $236 million, reflecting strong operating cash flow generation and lower capital expenditure needs.

Our capital allocation philosophy balances ongoing investment in the business, including organic investments and acquisitions, alongside shareholder returns such as regular dividends, share repurchases, and special dividends. First, in the first half of Fiscal 2026, capital expenditures decreased by $16 million compared to the year-ago period. While we continue to fully invest behind our business, we have completed a number of projects and expansions, which reduced our working capital requirements and improved cash generated. We grew cash flows from operations by $163 million to $292 million, primarily reflecting disciplined working capital management. Free cash flow, defined as net cash provided by operating activities, less purchase of PP&E, as presented in the statement of cash flows, increased by $179 million to $236 million, reflecting strong operating cash flow generation and lower capital expenditure needs.

Speaker #3: First , in the first half of fiscal 2026 , capital expenditures decreased by $16 million compared to the year ago period . While we continue to fully invest behind our business , we have completed a number of projects and expansions which reduced our working capital requirements and cash generated .

Speaker #3: First , in the first half of fiscal 2026 , capital expenditures decreased by $16 million compared to the year ago period . While we continue to fully invest behind our business , we have completed a number of projects and expansions which reduced our working capital requirements and cash improved grew We cash flows from operations by $163 million to $292 million , primarily reflecting disciplined capital working management .

Speaker #3: Free cash flow defined as net cash provided by operating , less activities a purchase , as pay presented in the Statement of cash flows increased by $179 million to $236 million , reflecting strong cash flow operating generation and lower capital expenditure needs .

Speaker #3: Secondly , on November 19th , 2025 , our Board of Directors approved a 2% increase in the quarterly cash dividend , 42 consecutive marking years of dividend increases and 82 consecutive years of paying a regular cash dividend .

Operator: Secondly, on 19 November 2025, our board of directors approved a 2% increase in the quarterly cash dividend, marking 42 consecutive years of dividend increases and 82 consecutive years of paying a regular cash dividend. This is a powerful testament to the strength of our balance sheet, the confidence we have in our ability to generate strong cash flow, and to our commitment to returning cash to shareholders. Finally, as you may recall, on 2 October 2025, the Brown-Forman Board of Directors authorized the repurchase of up to $400 million of our outstanding shares of Class A and Class B common stock. As of 31 October 2025, we have repurchased $99 million of our outstanding shares of Class A and Class B common stock.

Secondly, on 19 November 2025, our board of directors approved a 2% increase in the quarterly cash dividend, marking 42 consecutive years of dividend increases and 82 consecutive years of paying a regular cash dividend. This is a powerful testament to the strength of our balance sheet, the confidence we have in our ability to generate strong cash flow, and to our commitment to returning cash to shareholders. Finally, as you may recall, on 2 October 2025, the Brown-Forman Board of Directors authorized the repurchase of up to $400 million of our outstanding shares of Class A and Class B common stock. As of 31 October 2025, we have repurchased $99 million of our outstanding shares of Class A and Class B common stock.

Speaker #3: This is a powerful testament to the strength of our balance sheet . The confidence we have in our ability to generate strong cash flow and to our commitment to returning cash to shareholders .

Speaker #3: Finally , as you may recall , on October 2nd , 2025 , Brown-Forman Board of the Directors authorized the repurchase of up to $400 million of our outstanding shares of class A and class B common stock .

Speaker #3: As of October 31, 2025, we have repurchased $99 million of our outstanding shares of Class A and Class B common stock.

Speaker #3: Our enduring commitment valued to our shareholders , coupled with a long term perspective and the focus on building valuable brands , is the foundation of our allocation capital philosophy and guides our decisions .

Operator: Our enduring commitment to our valued shareholders, coupled with a long-term perspective and the focus on building valuable brands, is the foundation of our capital allocation philosophy and guides our decisions. Now turning to our full-year Fiscal 2026 outlook, which, as Lawson shared, we are reaffirming. We continue to navigate a spirits sector facing headwinds and still expect that the behavior of the consumer and the level of trade inventories will not change meaningfully during Fiscal 2026. Our guidance also continues to assume that there will be no change to the current tariff impact, direct and indirect, on our products. We strongly believe that we will navigate these short-term challenges through the strength of our portfolio, including strategic innovation, the benefits of our Route-to-Consumer transitions, and our evolved workforce structure. Our expectations from a geographic perspective remain the same as well.

Our enduring commitment to our valued shareholders, coupled with a long-term perspective and the focus on building valuable brands, is the foundation of our capital allocation philosophy and guides our decisions. Now turning to our full-year Fiscal 2026 outlook, which, as Lawson shared, we are reaffirming. We continue to navigate a spirits sector facing headwinds and still expect that the behavior of the consumer and the level of trade inventories will not change meaningfully during Fiscal 2026. Our guidance also continues to assume that there will be no change to the current tariff impact, direct and indirect, on our products. We strongly believe that we will navigate these short-term challenges through the strength of our portfolio, including strategic innovation, the benefits of our Route-to-Consumer transitions, and our evolved workforce structure. Our expectations from a geographic perspective remain the same as well.

Speaker #3: Now , turning to our full year fiscal 2026 outlook , which , as Lawson shared , we are reaffirming we continue to navigate a spirits sector facing headwinds and still expect that the behavior of the consumer and the level of trade inventories will not change meaningfully during the 2026 fiscal year .

Speaker #3: Our guidance also continues to assume that there will be no change to the tariff current impact . Direct and indirect , on our products .

Speaker #3: We strongly believe that we will navigate these short term challenges through the strength of our portfolio , including strategic innovation , the benefits of our route to consumer transitions , and our evolved workforce structure , our expectations from a geographic perspective remain the same as well .

Speaker #3: We still forecast continued growth in our emerging markets and the global travel retail channel , and expect the depletion based trends in the US and developed international markets to remain similar to fiscal 2025 , with the exception of Canada .

Operator: We still forecast continued growth in our emerging markets and the global travel retail channel and expect the depletion-based trends in the US and developed international markets to remain similar to fiscal 2025, with the exception of Canada. The continued unavailability of American spirits products in Canada resulted in a significant impact to our top-line performance. While we are hopeful for the return of American products to Canadian store shelves, we continue to assume this headwind will persist for our full fiscal year and is reflected in our full-year guidance. In addition to Canada, the other cyclical headwind, largely specific to Brown-Forman, is the year-over-year change in our used barrel sales. Used barrel sales have returned to levels that reflect the challenging and uncertain operating environment for the spirits industry. We continue to expect used barrel sales to be lower by more than half of fiscal 2025 level.

We still forecast continued growth in our emerging markets and the global travel retail channel and expect the depletion-based trends in the US and developed international markets to remain similar to fiscal 2025, with the exception of Canada. The continued unavailability of American spirits products in Canada resulted in a significant impact to our top-line performance. While we are hopeful for the return of American products to Canadian store shelves, we continue to assume this headwind will persist for our full fiscal year and is reflected in our full-year guidance. In addition to Canada, the other cyclical headwind, largely specific to Brown-Forman, is the year-over-year change in our used barrel sales. Used barrel sales have returned to levels that reflect the challenging and uncertain operating environment for the spirits industry. We continue to expect used barrel sales to be lower by more than half of fiscal 2025 level.

Speaker #3: The continued unavailability of American spirits products in Canada resulted in a significant impact to our top line performance . While we are hopeful for the return of American products Canadian to store shelves , we continue to assume this headwind will persist for our full fiscal is year .

Speaker #3: reflected in our And full year guidance . In addition to Canada , the other cyclical headwind largely specific to Brown-Forman is the year over change in our used barrel sales .

Speaker #3: Used barrel sales have returned to levels that reflect the challenging and uncertain operating environment for the spirits industry . We continue to expect barrel used sales to lower by be more than half fiscal 2025 , of level , while we continue to execute our long term pricing strategy and expect to benefit from revenue growth management activities and strategic innovation , particularly Jack Daniel's Tennessee BlackBerry , we anticipate product mix headwinds due to the faster growth of our RTD portfolio and agency brands in Japan and Mexico .

Operator: While we continue to execute our long-term pricing strategy and expect to benefit from our revenue growth management activities and strategic innovation, particularly Jack Daniel's Tennessee BlackBerry, we anticipate product mix headwinds due to the faster growth of our RTD portfolio and agency brands in Japan and Mexico. We still anticipate that shipments will roughly be in line with depletions in Fiscal 2026. We anticipate that ordering patterns in the second half of the year will reflect more typical seasonality as our US distributor network moves beyond the phasing impact of the initial transitions and the launch of Jack Daniel's Tennessee BlackBerry concludes. For Fiscal 2026, based on the currently known factors, we continue to expect a low single-digit decline in organic net sales and reported gross margin expansion, as we believe the benefit from A&D will more than offset the headwinds from negative price mix and higher costs.

While we continue to execute our long-term pricing strategy and expect to benefit from our revenue growth management activities and strategic innovation, particularly Jack Daniel's Tennessee BlackBerry, we anticipate product mix headwinds due to the faster growth of our RTD portfolio and agency brands in Japan and Mexico. We still anticipate that shipments will roughly be in line with depletions in Fiscal 2026. We anticipate that ordering patterns in the second half of the year will reflect more typical seasonality as our US distributor network moves beyond the phasing impact of the initial transitions and the launch of Jack Daniel's Tennessee BlackBerry concludes. For Fiscal 2026, based on the currently known factors, we continue to expect a low single-digit decline in organic net sales and reported gross margin expansion, as we believe the benefit from A&D will more than offset the headwinds from negative price mix and higher costs.

Speaker #3: We still anticipate that shipments will roughly be in line with Depletions in fiscal 2026 . We anticipate that ordering patterns in the second half of the year will reflect more typical seasonality as our U.S.

Speaker #3: distributor network moves beyond the phasing impact of the initial transitions and the launch of Jack Daniel's Tennessee BlackBerry concludes for fiscal 2026 . Based on the currently known factors , we continue to expect a low single digit decline in organic net sales and reported gross margin expansion as believe the we benefit from and will more than offset the headwinds from negative price mix and higher costs .

Speaker #3: While input costs will continue to benefit from lower agave costs , we project higher costs compared to the prior year , largely the driven by impact of inflation and lower production volumes .

Operator: While input costs will continue to benefit from lower agave cost, we project higher costs compared to the prior year, largely driven by the impact of inflation and lower production volumes. In addition, as we shared previously, following the divestiture of Sonoma-Cutrer, we entered into a transition services agreement, which had a negative impact on our overall reported gross margin. The TSA has ended, resulting in a positive impact on a year-over-year basis, and the absence of Korbel is expected to benefit reported gross margin. Our outlook for organic operating expenses reflects continued management of controllable expenses. Our A&P spend will continue to reflect investment behind our brands that is aligned with our depletion-based top-line outlook. We also continue to expect a reduction in SG&A following our strategic workforce restructuring initiative. Based on the above, we are forecasting organic operating income to decline in the low single-digit range.

While input costs will continue to benefit from lower agave cost, we project higher costs compared to the prior year, largely driven by the impact of inflation and lower production volumes. In addition, as we shared previously, following the divestiture of Sonoma-Cutrer, we entered into a transition services agreement, which had a negative impact on our overall reported gross margin. The TSA has ended, resulting in a positive impact on a year-over-year basis, and the absence of Korbel is expected to benefit reported gross margin. Our outlook for organic operating expenses reflects continued management of controllable expenses. Our A&P spend will continue to reflect investment behind our brands that is aligned with our depletion-based top-line outlook. We also continue to expect a reduction in SG&A following our strategic workforce restructuring initiative. Based on the above, we are forecasting organic operating income to decline in the low single-digit range.

Speaker #3: In addition , as we shared Following previously . the divestiture of Sonoma Cutrer , we entered into a transition services had a negative agreement , which our overall impact on reported gross margin .

Speaker #3: The TSA has ended , resulting in a positive impact on a year over year basis and absence of the Korbell is expected to benefit reported gross margin .

Speaker #3: Our outlook for organic operating expenses reflects continued management of expenses . controllable A&P Our continue to reflect investment behind our brands . That is aligned with our depletion based top line outlook .

Speaker #3: We also continue to expect a reduction in G&A following our strategic workforce restructuring initiative . Based on the above , we are forecasting organic operating income to decline in the low single digit range .

Speaker #3: We also continue to expect our effective tax rate to be in the range of approximately 21 to 23% . We are updating our estimated capital expenditures outlook from a range of 125 to $135 million to a range of 110 to $120 million for the full year .

Operator: We also continue to expect our effective tax rate to be in the range of approximately 21% to 23%. We are updating our estimated capital expenditures outlook from a range of $125 to 135 million to a range of $110 to 120 million for the full year. While this range is lower than previous years, we have completed a number of projects and expansions and remain committed to our long-held capital allocation philosophy to first invest fully behind our business. We also continue to focus on reducing our finished goods inventory, which should further reduce our working capital needs and significantly improve cash generated. Again, our performance in the first half of Fiscal 2026 is largely in line with our expectations and provides us the confidence to reaffirm our full-year 2026 outlook.

We also continue to expect our effective tax rate to be in the range of approximately 21% to 23%. We are updating our estimated capital expenditures outlook from a range of $125 to 135 million to a range of $110 to 120 million for the full year. While this range is lower than previous years, we have completed a number of projects and expansions and remain committed to our long-held capital allocation philosophy to first invest fully behind our business. We also continue to focus on reducing our finished goods inventory, which should further reduce our working capital needs and significantly improve cash generated. Again, our performance in the first half of Fiscal 2026 is largely in line with our expectations and provides us the confidence to reaffirm our full-year 2026 outlook.

Speaker #3: While this range is lower than previous years , we have number of projects and expansions remain committed completed a and our long held allocation capital philosophy to first invest fully behind our business , and we also continue to focus on reducing our finished goods inventory , which should further reduce our working capital needs and significantly cash improve generated .

Speaker #3: Again, our performance in the first half of fiscal 2026 is largely in line with our expectations and provides us the confidence to reaffirm our full-year 2026 outlook. As we enter the second half of fiscal 2026, we will continue to focus on growing our portfolio of brands, capitalizing on our strategic route to consumer changes, and leveraging our evolved workforce structure.

Operator: As we enter the second half of Fiscal 2026, we will continue to focus on growing our portfolio of brands, capitalizing on our strategic Route-to-Consumer changes, and leveraging our evolved workforce structure. We are committed to thoughtfully and strategically managing through the current volatility and uncertainty while positioning the company to deliver long-term growth. This concludes our prepared remarks. Please open the line for questions. Certainly. As a reminder, to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please limit yourself to one question in the interest of time. Please stand by while we compile our Q&A roster. And our first question will be coming from Lauren Lieberman of Barclays. Lauren, your line is open. Great. Thanks so much. Good morning, everyone.

As we enter the second half of Fiscal 2026, we will continue to focus on growing our portfolio of brands, capitalizing on our strategic Route-to-Consumer changes, and leveraging our evolved workforce structure. We are committed to thoughtfully and strategically managing through the current volatility and uncertainty while positioning the company to deliver long-term growth. This concludes our prepared remarks. Please open the line for questions.

Speaker #3: We are committed to thoughtfully and strategically managing through the current volatility and uncertainty while positioning the company to deliver long-term growth. This concludes our prepared remarks.

Speaker #3: Please open the line for questions .

Speaker #4: Certainly , as a reminder to ask a question , you will need to one one on your telephone and wait for your name to press star announced withdraw your .

Certainly. As a reminder, to ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please limit yourself to one question in the interest of time. Please stand by while we compile our Q&A roster. And our first question will be coming from Lauren Lieberman of Barclays. Lauren, your line is open.

Speaker #4: please To question , press star one one again . Please limit yourself to one question in the interest of time , please stand by while we compile our Q&A roster .

Speaker #4: And our first question will be coming from Lauren Lieberman of Barclays. Lauren, your line is open.

Speaker #5: Great . Thanks so much . Good morning everyone . Just wanted to talk a little bit again about the new distribution partners . It seems like you're starting to see impact , but really gearing up now into the holiday season .

Lauren Lieberman: Great. Thanks so much. Good morning, everyone.

Operator: Just wanted to talk a little bit again about the new distribution partners. It seems like you're starting to see impact, but really gearing up now into the holiday season. So maybe we'd just love a little perspective on how you might compare the plans that are in place for this year's holiday season versus last, and then also the level of caution that you're seeing from these brand new distributor partners who are going to be excited, but you've also got the known headwinds and questions around the consumer in the category environment. Thanks. All right. Let me take a try at this. So a little bit of context for those that haven't followed as closely this year around what we've done in the US in terms of RTC changes. So California was the first. That was back on 1 May.

Just wanted to talk a little bit again about the new distribution partners. It seems like you're starting to see impact, but really gearing up now into the holiday season. So maybe we'd just love a little perspective on how you might compare the plans that are in place for this year's holiday season versus last, and then also the level of caution that you're seeing from these brand new distributor partners who are going to be excited, but you've also got the known headwinds and questions around the consumer in the category environment. Thanks.

Speaker #5: So maybe we'd just love a little perspective on how you might compare the plans that are in place for this year's holiday season versus last .

Speaker #5: And then also the level of caution you're that seeing from these brand new distributor partners who are going to be But you've also the known headwinds and got questions around the consumer and the category environment .

Speaker #5: Thanks . .

Speaker #6: right . All Let me take a try at this . So a little bit of context , particularly for those that haven't followed as closely this year around what we've done in the US of our in terms ITC changes .

Lawson Whiting: All right. Let me take a try at this. So a little bit of context for those that haven't followed as closely this year around what we've done in the US in terms of RTC changes. So California was the first. That was back on 1 May.

Speaker #6: So the California was the first that was back on May 1st , and I think generally we would say while the transition took longer than we expected , it is now moving .

Speaker #6: And improving quickly . It's been a strong recovery in Q2 for the most part . Have the teams hired and are , you know , call the transition complete ?

Operator: I think generally we would say, while the transition took longer than we expected, it is now moving and improving quickly. It's been a strong recovery in Q2. They, for the most part, have the teams hired and called the transition complete. The other 13 markets went live on 1 August. We always have to keep reminding ourselves that was only three months ago. Well, now it was really all of Q2, but we had a lot of new partners. Obviously, not obviously, but the largest transition markets for Texas and New York, and those places that the teams are in place, everything is moving pretty much as planned, I think. One learning I think we had, the primary area where we had more disruption with the emerging brands, where it just took a little bit longer.

I think generally we would say, while the transition took longer than we expected, it is now moving and improving quickly. It's been a strong recovery in Q2. They, for the most part, have the teams hired and called the transition complete. The other 13 markets went live on 1 August. We always have to keep reminding ourselves that was only three months ago. Well, now it was really all of Q2, but we had a lot of new partners. Obviously, not obviously, but the largest transition markets for Texas and New York, and those places that the teams are in place, everything is moving pretty much as planned, I think. One learning I think we had, the primary area where we had more disruption with the emerging brands, where it just took a little bit longer.

Speaker #6: The 13 markets went live other on August 1st . So we always have to keep reminding ourselves that was only three months Well , now , you know , it really all of was Q2 .

Speaker #6: But we had a lot of new partners . Obviously . Not obviously , but the largest markets for transition Texas and New York and those places the teams are in place .

Speaker #6: Everything is moving pretty much as planned . I think . So the one learning , I think the we had primary area where we had more disruption with emerging brands , the where it just took a little bit longer .

Speaker #6: We as always happens when you change a distributor , you get , you know , you tend to lose some menus , some drink lists , things like that .

Operator: As always happens when you change a distributor, you tend to lose some menus, some drink lists, things like that. So that takes a little bit of time. We've been addressing that quite a bit. So overall, I'd say we're happy with our new and our existing partners and how everybody's performing. We've closed the gap to TDS quite a bit in the first half of this year. And actually, if you exclude RTDs, we're actually above TDS. So there are some green shoots and some good news there. Now, to your question, Lauren, about the consumer itself and how we sort of have seen things, I guess, these days, it hasn't changed significantly. We were talking yesterday as a team that this seemed like a boring quarter.

As always happens when you change a distributor, you tend to lose some menus, some drink lists, things like that. So that takes a little bit of time. We've been addressing that quite a bit. So overall, I'd say we're happy with our new and our existing partners and how everybody's performing. We've closed the gap to TDS quite a bit in the first half of this year. And actually, if you exclude RTDs, we're actually above TDS. So there are some green shoots and some good news there. Now, to your question, Lauren, about the consumer itself and how we sort of have seen things, I guess, these days, it hasn't changed significantly. We were talking yesterday as a team that this seemed like a boring quarter.

Speaker #6: So that takes a little bit of time . We've been addressing that quite a bit . So . So overall I'd say we're happy with our new and our existing partners and how everybody's performing .

Speaker #6: We've closed the gap to TDs quite a in the first half of this year . bit So and you actually if exclude Rtds , we're actually above TDs .

Speaker #6: So there are some green shoots and you good news . There know some . Now to your question , Lauren , about the consumer itself and how we sort of how we're seeing things .

Speaker #6: I guess these days it's it hasn't changed significantly . We talking were yesterday as a team that this seemed like a boring quarter in a lot , but of ways it was because one , we've had a lot of volatility in the last couple of years , and that seems to be slowing down a bit .

Operator: But in a lot of ways, it was because they're one, we've had a lot of volatility in the last couple of years, and that seems to be slowing down a bit. But the consumer behavior in the emerging markets continues to be very strong. Global travel retail was very strong. We continue to see softness in the US and some of our larger markets in Europe. But in aggregate, I do think, look, you've seen all the other categories within the CPG world of food, personal care, QSRs, retail, and a bunch of others, all of whom have gotten more conservative in the last, say, six months or so. And we see some of that too. I think it's important to look at the takeaway trends at TDS for the US. They're still declining. They haven't moved a lot, but they have weakened a bit.

But in a lot of ways, it was because they're one, we've had a lot of volatility in the last couple of years, and that seems to be slowing down a bit. But the consumer behavior in the emerging markets continues to be very strong. Global travel retail was very strong. We continue to see softness in the US and some of our larger markets in Europe. But in aggregate, I do think, look, you've seen all the other categories within the CPG world of food, personal care, QSRs, retail, and a bunch of others, all of whom have gotten more conservative in the last, say, six months or so. And we see some of that too. I think it's important to look at the takeaway trends at TDS for the US. They're still declining. They haven't moved a lot, but they have weakened a bit.

Speaker #6: But the consumer behavior in the emerging markets continues to be very strong . Global travel very was retail strong . We continue to see softness in the US and some of our larger markets in Europe .

Speaker #6: But in aggregate , I do think look , seen you've all the other categories within the CPG world of food and personal care and QSR and retail and a bunch of others , all of whom have gotten more conservative last , say , in the six months or so .

Speaker #6: And we see some of that , too . it's important to look at I think the takeaway trends at TDs for the US .

Speaker #6: They they're still declining . They haven't moved a lot , but they have weakened a So bit . in terms of total spirits , distilled , you know takeaway little bit that is a concerning .

Speaker #6: But as I said , we're closing the gap on of that is we're that . Some improving better and some of it is the , you know , the market is going down a little bit .

Operator: So in terms of total distilled spirits takeaway, that is a little bit concerning. But as I said, we're closing the gap on that. Some of that is we're improving better, and some of it is the market is going down a little bit. So I think another important point within TDS innovation remains the big driver. And that's not only for us, but Jack Daniel's Tennessee BlackBerry, which has been very important. And I'm sure we're going to talk more about that this morning. But innovation in general is a big factor in the US market these days. The RTD category is really the only category gaining share. And while not a trend, we are seeing some weakening for the first time in terms of trade down. And that's really the first time.

So in terms of total distilled spirits takeaway, that is a little bit concerning. But as I said, we're closing the gap on that. Some of that is we're improving better, and some of it is the market is going down a little bit. So I think another important point within TDS innovation remains the big driver. And that's not only for us, but Jack Daniel's Tennessee BlackBerry, which has been very important. And I'm sure we're going to talk more about that this morning. But innovation in general is a big factor in the US market these days. The RTD category is really the only category gaining share. And while not a trend, we are seeing some weakening for the first time in terms of trade down. And that's really the first time.

Speaker #6: So , you know , I think another important point within TDs innovation remains the big driver . And that's not only for us , but Jack Daniel's Tennessee BlackBerry , which has been very important .

Speaker #6: And I'm sure we're going to talk more about morning. But, you know, innovation in general is a factor in the U.S. market these days.

Speaker #6: big category is really the only gaining category RTD share . And while not a we'd like to say , well , not a trend , we are seeing some weakening for the terms of trade down .

Speaker #6: first time in really the first that's time . So I don't I don't want to make too big of a deal about it , but certainly when you look at $100 and above or 50 to $100 , those price points have weakened considerably from where they were .

Operator: So I don't want to make too big of a deal about it. But certainly, when you look at $100 and above or $50 to $100, those price points have weakened considerably from where they were, say, six months or a year ago. And the only, not that I don't want to get into structural versus cyclical, you didn't ask that, but I do find an interesting trade down is clearly a cyclical factor, not a structural factor, at least in my head. So if you're weighing out the factors that are out there between structural and cyclical, this is one more that says consumers pinched. They are trading down just a little bit, but we do think that's a temporary thing and will turn.

So I don't want to make too big of a deal about it. But certainly, when you look at $100 and above or $50 to $100, those price points have weakened considerably from where they were, say, six months or a year ago. And the only, not that I don't want to get into structural versus cyclical, you didn't ask that, but I do find an interesting trade down is clearly a cyclical factor, not a structural factor, at least in my head. So if you're weighing out the factors that are out there between structural and cyclical, this is one more that says consumers pinched. They are trading down just a little bit, but we do think that's a temporary thing and will turn.

Speaker #6: You say six months or a year ago. So, and the only thing I don't know is that I don't want to get into structural versus cyclical.

Speaker #6: You didn't ask that . But I do I do interesting find it down . Trade is clearly a cyclical factor , not a structural factor , at least in my head .

Speaker #6: So if you're weighing out the factors that are out there between structural and cyclical , this is one more that says consumers pinched .

Speaker #6: They are a little trading down just bit . But we do think that's a temporary thing . And we'll turn .

Speaker #7: And then what what I'll build on to that is , you know , we've been saying for several quarters , you know , we've been trying to strategically navigate the environment at pace , and we're beginning to see the benefits of those strategic initiatives .

Operator: And then what I'll build on to that is we've been saying for several quarters, we've been trying to strategically navigate the volatile environment at pace, and we're beginning to see the benefits of those strategic initiatives, like we said in our prepared remarks. Lawson said that innovation is driving growth, and we have our strategic innovation of BlackBerry. From a strategic RTC perspective, we've made the changes to our US distributor network, as well as own distribution in Japan and Italy, which are contributing. And then from an SG&A perspective, our involved workforce. Well, I mean, we're really getting to the point where we are seeing benefits from the initiatives that we have been putting in place to drive the results we reported today. And our next question will be coming from Peter Grom of UBS. Peter, your line is open. Great. Thank you. Good morning, everyone.

Leanne Cunningham: And then what I'll build on to that is we've been saying for several quarters, we've been trying to strategically navigate the volatile environment at pace, and we're beginning to see the benefits of those strategic initiatives, like we said in our prepared remarks. Lawson said that innovation is driving growth, and we have our strategic innovation of BlackBerry. From a strategic RTC perspective, we've made the changes to our US distributor network, as well as own distribution in Japan and Italy, which are contributing. And then from an SG&A perspective, our involved workforce. Well, I mean, we're really getting to the point where we are seeing benefits from the initiatives that we have been putting in place to drive the results we reported today.

Speaker #7: Like we said in our prepared remarks, Lawson Whiting stated that innovation is driving growth. We have our strategic innovation of BlackBerry from a strategic RTC perspective. We've made changes to our U.S. distributor network as well as our own distribution in Japan and Italy, which are contributing. From a G&A perspective, our evolved workforce is also playing a significant role.

Speaker #7: I mean , we're really getting to the point where we are seeing benefits from . The initiatives that we have been putting in place to drive the results .

Speaker #7: We reported today .

Speaker #4: And our next question will be coming from Peter Graham of UBS. Peter, your line is open.

Operator: And our next question will be coming from Peter Grom of UBS. Peter, your line is open.

Speaker #8: Great . Thank you . Good morning everyone . wanted to I follow up on the last point . Just on what you're in seeing terms of .

Peter Grom: Great. Thank you. Good morning, everyone.

Speaker #8: The consumer and the category , but maybe more real time just around the upcoming holiday season . What you've kind of seen through , you November and a few days here in December you mentioned the , because categories continue to decelerate .

Operator: I kind of wanted to follow up on the last point, just on what you're seeing in terms of the consumer and the category, but maybe more real-time just around the upcoming holiday season, what you've kind of seen through November and a few days here in December. Because you mentioned the categories continue to decelerate in loss, and you kind of touched on the fact that other CBG companies are talking about a weaker performance over the last six months. But I think a lot of those CBG peers, even this week, are speaking to an operating environment that actually has gotten a bit more worse, I would say, or more challenged over the last six weeks or so. So is that similar to what you're seeing? Are you seeing the category get a lot worse quarter to date and kind of what you're expecting from a holiday period?

I kind of wanted to follow up on the last point, just on what you're seeing in terms of the consumer and the category, but maybe more real-time just around the upcoming holiday season, what you've kind of seen through November and a few days here in December. Because you mentioned the categories continue to decelerate in loss, and you kind of touched on the fact that other CBG companies are talking about a weaker performance over the last six months. But I think a lot of those CBG peers, even this week, are speaking to an operating environment that actually has gotten a bit more worse, I would say, or more challenged over the last six weeks or so. So is that similar to what you're seeing? Are you seeing the category get a lot worse quarter to date and kind of what you're expecting from a holiday period?

Speaker #8: And Lawson, you kind of touched on the fact that other CPG companies are talking about a weaker performance over the last six months.

Speaker #8: think a But I lot of those CPG peers , even this week , are speaking operating to an environment that's has gotten a bit actually more worse .

Speaker #8: I would say , or more challenged over the last six weeks or so . So is that similar to you're seeing ? Are you seeing the category get a lot worse ?

Speaker #8: You know , quarter to date and kind of what you're expecting from a holiday period . And then I guess just underpinning that , you noted on the difference between what we're seeing in terms of category trends and your organic results here in the US .

Operator: And then I guess just underpinning that, right? You noted on the difference between what we're seeing in terms of category trends and your organic results here in the US. So should that gap narrow looking forward such that what we see in the data is more aligned with kind of your underlying growth? Thanks. Yeah. So look, as I said a second ago, the total distilled spirits has weakened in the last six months or so, not dramatically, but it has. I don't know about the last month. I don't really track trends quite that short term. But I think the promotional environment, I mean, look, we know the consumer is going to be looking for sort of value and remaining very brand loyal, I think. But the environment remains rational.

And then I guess just underpinning that, right? You noted on the difference between what we're seeing in terms of category trends and your organic results here in the US. So should that gap narrow looking forward such that what we see in the data is more aligned with kind of your underlying growth? Thanks.

Speaker #8: So that gap should narrow looking forward such that what we see in the data is more aligned with kind of your underlying growth ?

Speaker #8: Thanks .

Speaker #6: So, yeah. Look, as I said a second ago, the total sealed spirits has weakened in the last six months or so.

Lawson Whiting: Yeah. So look, as I said a second ago, the total distilled spirits has weakened in the last six months or so, not dramatically, but it has. I don't know about the last month. I don't really track trends quite that short term. But I think the promotional environment, I mean, look, we know the consumer is going to be looking for sort of value and remaining very brand loyal, I think. But the environment remains rational.

Speaker #6: Not not dramatically , but it has . I , I don't know about the last month . I don't really track trends quite that short term , but I think the environment , I mean , look , we know the consumer promotional is going to be looking for sort of value and remaining very brand loyal , I think .

Speaker #6: But the the environment remains rational when you look through the different like the Nielsen takeaway numbers and the pricing figures within their use this term , we we used it a few times in the last year of a rational behavior by the other big suppliers , the , you know , tequila has felt some pressure , but not as much .

Operator: When you look through the different Nielsen takeaway numbers and the pricing figures within there, we use this term. We used it a few times in the last year of a rational behavior by the other big suppliers. The tequila has felt some pressure, but honestly, not as much, maybe as some would have predicted given the massive drop in the agave costs. American whiskey pricing is holding up fairly well. Let's see. What is it? Down about 0.5 point. So that's pretty close. We're actually a little bit less than that. So holding together. It seems like just the pricing environment remains rational. I think our expectations for this holiday season are, we're trying to be optimistic, but at the same time, we are looking and seeing some of the macro trends that are tough.

When you look through the different Nielsen takeaway numbers and the pricing figures within there, we use this term. We used it a few times in the last year of a rational behavior by the other big suppliers. The tequila has felt some pressure, but honestly, not as much, maybe as some would have predicted given the massive drop in the agave costs. American whiskey pricing is holding up fairly well. Let's see. What is it? Down about 0.5 point. So that's pretty close. We're actually a little bit less than that. So holding together. It seems like just the pricing environment remains rational. I think our expectations for this holiday season are, we're trying to be optimistic, but at the same time, we are looking and seeing some of the macro trends that are tough.

Speaker #6: Maybe some would as have predicted , given the massive drop agave costs . American whiskey pricing is holding up fairly well . Let's see , what is it down ?

Speaker #6: About a half a So point . that's that's pretty close . We're actually a little bit less than that . So holding together and it seems like just the pricing environment remains rational .

Speaker #6: And I think our expectations for this holiday season , you know , are we're trying to be optimistic . But at the same time , we are looking and seeing some of the trends that are tough .

Speaker #6: So macro , you know , I think we're looking forward to a good I feel like the teams you know , have got have , us set up and we've got our new distributors that very are aware of the , you know , the importance of this getting right .

Operator: So I think we're looking forward to a good, I feel like the teams have got us set up, and we've got our new distributors that are very aware of the importance of getting this season right. And from what we are hearing, we're ready to go. So let's see how it all turns out. And then to your second question on the US, where we are showing a +3% for the US on our depletion-based top-line results compared to kind of takeaway trends of a -3%. What really is driving that gap for us is part of it is the launch of Jack Daniel's Tennessee BlackBerry. And as we shared in our last call, it's moving through the process of original shipments impacting our organic results to depletions and then to takeaway.

So I think we're looking forward to a good, I feel like the teams have got us set up, and we've got our new distributors that are very aware of the importance of getting this season right. And from what we are hearing, we're ready to go. So let's see how it all turns out.

Speaker #6: season And from what we're hearing , we're ready to go . So let's see . Let's see how it turns out . all

Speaker #7: And then to the second question, you mentioned that we in the U.S. are showing a plus 3% for the U.S. on our depletion base, top-line results compared to kind of takeaway trends of a minus 3%. What is really driving that gap for us is part of it being the launch of Jack Daniel's Tennessee Blackberry.

Lauren Lieberman: And then to your second question on the US, where we are showing a +3% for the US on our depletion-based top-line results compared to kind of takeaway trends of a -3%. What really is driving that gap for us is part of it is the launch of Jack Daniel's Tennessee BlackBerry. And as we shared in our last call, it's moving through the process of original shipments impacting our organic results to depletions and then to takeaway.

Speaker #7: And as we shared in our last call , you know , it's moving through the process of original shipments organic impacting our results to Depletions and then to takeaway Q2 for us was the first full quarter of having full shipments and beginning to move into depletion based results .

Operator: Q2 for us was the first full quarter of having full shipments and beginning to move into depletion-based results. And we're seeing it bleed into consumer takeaway. As we get into the next couple of quarters, we should see all of those data points balance out. And then the other piece for the US is that benefit that we are referring to from our US distributor relationship terms and the strategic initiative that we put in place for that. Yeah, that's important, actually. I made sure everybody heard that. The improved terms are something that are, I mean, permanent. We're going to have them all year. And so that is giving us some breathing room. It's adding to our top-line growth, and I think is a very successful outcome of what we did. The other point to really highlight, I think, is the lower-used barrel sales.

Q2 for us was the first full quarter of having full shipments and beginning to move into depletion-based results. And we're seeing it bleed into consumer takeaway. As we get into the next couple of quarters, we should see all of those data points balance out. And then the other piece for the US is that benefit that we are referring to from our US distributor relationship terms and the strategic initiative that we put in place for that.

Speaker #7: seeing it And we're into bleed consumer takeaway as we get into the next couple of quarters . We should see all of those data points balance out .

Speaker #7: And then the other piece for the is that benefit that we are referring to from our US distributor relationship terms and the strategic initiative that we put in place for that .

Speaker #6: Yeah , that's important actually . We make sure everybody heard that a that improved something that terms are are I mean , permanent .

Lawson Whiting: Yeah, that's important, actually. I made sure everybody heard that. The improved terms are something that are, I mean, permanent. We're going to have them all year. And so that is giving us some breathing room. It's adding to our top-line growth, and I think is a very successful outcome of what we did. The other point to really highlight, I think, is the lower-used barrel sales.

Speaker #6: We're going to have them all year, and so that is giving us some breathing room and adding to our top growth.

Speaker #6: line And I think , you know is a very successful outcome of of what did . The other point to really highlight , I think , is the lower use barrel sales .

Speaker #6: I think if maybe a few people underestimated how big how of a problem , quite honestly , that sales is . And the are down 61% in the first half of the year .

Operator: I think maybe a few people underestimated how big of a problem, quite honestly, that is. The sales are down 61% in the first half of the year. It's a pretty big business and a pretty big hit. Our results, obviously, would have been that much better had that not come through. But I know that's not a, it's really not a consumer thing. It's more of a global slowdown in beverage alcohol, which is now slowing down barrel sales. Yeah. And just to build on that just a bit, we said it in our prepared remarks that when you look at the American-produced spirits products being off the shelf in largely all the provinces in Canada, and the cyclicality in this environment of used barrel sales, collectively, those two were more than two points of impact, negative impact to our top line.

I think maybe a few people underestimated how big of a problem, quite honestly, that is. The sales are down 61% in the first half of the year. It's a pretty big business and a pretty big hit. Our results, obviously, would have been that much better had that not come through. But I know that's not a, it's really not a consumer thing. It's more of a global slowdown in beverage alcohol, which is now slowing down barrel sales. Yeah. And just to build on that just a bit, we said it in our prepared remarks that when you look at the American-produced spirits products being off the shelf in largely all the provinces in Canada, and the cyclicality in this environment of used barrel sales, collectively, those two were more than two points of impact, negative impact to our top line.

Speaker #6: It's a pretty big business and a pretty big . You know , our results obviously would have been that much better had that not come through .

Speaker #6: But that's not I know that's not a it's really not a consumer thing . It's more of a a global slowdown in beverage alcohol , which is now slowing down barrel sales .

Speaker #7: Yeah . And just to build on that bit when just a you when we said it in our prepared remarks that when you look at the American produced spirits products being off the shelf in largely all the provinces in Canada and the cyclicality in this environment of used barrel sales , collectively those two were more than two points of impact , negative impact to our top line .

Speaker #4: And our next question will be coming from Nadine Sarwat of Bernstein . Your line is open .

Operator: Our next question will be coming from Nadine Sarwat of Bernstein. Your line is open. Hi. Thank you, Lawson. Leanne, two questions for me. Leanne, I'd like to come back to the US. You spoke about takeaway. So by my calculation, your US net sales growth at an underlying level was +3%. You said takeaway was -3%. Can you talk to, in more detail, breaking down how that 6 percentage point gap will play out over the next two quarters? And then my second question is, Lawson touched on pricing. In this lower volumes for longer environment, how should we think about how you're approaching strategy when it comes to pricing and what you're seeing from your peers when it comes to calendar 2026? As I know, this is top of mind for many people. Thank you.

Operator: Our next question will be coming from Nadine Sarwat of Bernstein. Your line is open.

Speaker #9: Hi . Thank you . Lawson . Leanne , two questions for Leanne , I'd me . come back to the US . You spoke about takeaway .

Nadine Sarwat: Hi. Thank you, Lawson. Leanne, two questions for me. Leanne, I'd like to come back to the US. You spoke about takeaway. So by my calculation, your US net sales growth at an underlying level was +3%. You said takeaway was -3%. Can you talk to, in more detail, breaking down how that 6 percentage point gap will play out over the next two quarters? And then my second question is, Lawson touched on pricing. In this lower volumes for longer environment, how should we think about how you're approaching strategy when it comes to pricing and what you're seeing from your peers when it comes to calendar 2026? As I know, this is top of mind for many people. Thank you.

Speaker #9: So, you know, by my calculation, your U.S. net sales growth at an underlying level was a plus three. You said takeaway was minus three.

Speaker #9: Can you talk to in more detail ? Breaking down how that six percentage point gap will play out over the next two quarters .

Speaker #9: And then my second question is you . Lawson touched on pricing in this lower volumes for longer should we environment . How think about how you're approaching strategy when it comes to pricing and what you're seeing from your peers when it comes to calendar 2026 ?

Speaker #9: As I know this is top of mind for many people . Thank you .

Speaker #7: Nadine , Okay , I'll start with your first question , which kind of again , going back the to US top line depletion pace results at a plus three takeaway at a minus three .

Operator: Okay, Nadine, I'll start with your first question, which, again, kind of going back to the US top-line depletion-based results at +3%, takeaway at -3%. It's really how we are seeing the flow-through of innovation with the impact of Jack Daniel's Tennessee BlackBerry launch, which I just spoke to, and also the benefit from the US distributor relationship terms that we're seeing flow through. As we go through the rest of the fiscal year, we expect those to narrow. And then I'll turn it over to Lawson for just the sort of the pricing environment. Look, we have not changed our sort of philosophy, if you will, on pricing. And low and slow are constantly words that I use with our teams. And they're doing that. And the US is tough right now, but Brown-Forman's pricing across the entire portfolio is down to 0.3%.

Leanne Cunningham: Okay, Nadine, I'll start with your first question, which, again, kind of going back to the US top-line depletion-based results at +3%, takeaway at -3%. It's really how we are seeing the flow-through of innovation with the impact of Jack Daniel's Tennessee BlackBerry launch, which I just spoke to, and also the benefit from the US distributor relationship terms that we're seeing flow through. As we go through the rest of the fiscal year, we expect those to narrow. And then I'll turn it over to Lawson for

Speaker #7: It's really how we are seeing the flow-through of innovation with the impact of Jack Daniel's Tennessee Blackberry launch, which I just spoke to, and also the benefit from the U.S. distributor relationship terms that we're seeing flow through as we go through the rest of the fiscal year.

Speaker #7: We expect those to narrow , and then I'll turn it over to Lawson for .

Speaker #6: Just the sort of the pricing environment . Look , I really we have not changed our sort of philosophy , if you will , on pricing and low and slow constantly are words that I use with our teams .

Lawson Whiting: just the sort of the pricing environment. Look, we have not changed our sort of philosophy, if you will, on pricing. And low and slow are constantly words that I use with our teams. And they're doing that. And the US is tough right now, but Brown-Forman's pricing across the entire portfolio is down to 0.3%.

Speaker #6: And so and they're doing that and the US is tough right now . But like brown-forman's pricing across the entire down portfolio is down 0.3 .

Speaker #6: So to close flat in terms of an overall price . And the TDs is a little bit worse than that , but not a lot .

Operator: So close to flat in terms of an overall price. And the TDS is a little bit worse than that, but not a lot. So I'll go back to the line I used a minute ago on sort of a rational performance. It does seem like the big players are holding together. So I feel pretty good about it. Look, we'll continue to monitor the competitor promotional activity and respond when we have to. But we also are very conscious about protecting our pricing, our margins, and ultimately our brand equity. So as I say, I think we feel pretty good about the pricing environment. It certainly could have been a whole lot worse. Thank you. Our next question will be coming from Robert Ottenstein of Evercore ISI. Your line is open. Great. Thank you very much. Just a couple of follow-ups, please.

So close to flat in terms of an overall price. And the TDS is a little bit worse than that, but not a lot. So I'll go back to the line I used a minute ago on sort of a rational performance. It does seem like the big players are holding together. So I feel pretty good about it. Look, we'll continue to monitor the competitor promotional activity and respond when we have to. But we also are very conscious about protecting our pricing, our margins, and ultimately our brand equity. So as I say, I think we feel pretty good about the pricing environment. It certainly could have been a whole lot worse. Thank you.

Speaker #6: So I'll go back to the line . I used a minute ago on sort of a rational performance . It does seem like the big , you know , the big players are holding , holding together .

Speaker #6: So I feel pretty good about it . You know , look , we'll continue to monitor the competitor promotional and activity respond to , you know , when we have to .

Speaker #6: But we also are very about conscious protecting our , our pricing and our margins and ultimately our equity . brand So , you know , as I say , I think we feel pretty good about the pricing environment .

Speaker #6: It certainly could have been a whole lot worse .

Speaker #4: you . Our next Thank question will be coming from Robert Ottenstein of Evercore ISI . Your line is open .

Our next question will be coming from Robert Ottenstein of Evercore ISI. Your line is open.

Speaker #10: Great . Thank you very much . Just just a couple of follow ups , please . I think you mentioned kind of the $100 plus area was where you're seeing most of the trade down .

Robert Ottenstein: Great. Thank you very much. Just a couple of follow-ups, please.

Operator: Lawson, I think you mentioned kind of the $100+ area was where you're seeing most of the trade down. Does that mean that in the $20 to $30 area, you're really not seeing any trade down at this point? So that's just question number one. Question number two is I'd just love you to kind of give your thoughts on why you think the current level of advertising marketing investment is the right area and how you come up with that answer and whether you think, I guess, presumably, that increased investment wouldn't stimulate demand. And that's not just for you, but for the industry as a whole, right?

Lawson, I think you mentioned kind of the $100+ area was where you're seeing most of the trade down. Does that mean that in the $20 to $30 area, you're really not seeing any trade down at this point? So that's just question number one. Question number two is I'd just love you to kind of give your thoughts on why you think the current level of advertising marketing investment is the right area and how you come up with that answer and whether you think, I guess, presumably, that increased investment wouldn't stimulate demand. And that's not just for you, but for the industry as a whole, right?

Speaker #10: Does that mean that in the 20 to $30 area you're really not seeing any trade down at this point ? So that's just question number one .

Speaker #10: Question number two is I just loved you . You know , to kind of , you know , give give your thoughts on why think you the current level of advertising , marketing investment is the right area .

Speaker #10: And how how you come up with that , that answer and whether , you know , you think I guess presumably that increased investment wouldn't stimulate demand that's .

Speaker #10: not just just for And you , but for the industry as a whole . Right . You know , do you think the whole industry is is , doing the right advertising there marketing out create to desire and ?

Operator: Do you think the whole industry is doing the right advertising marketing out there to create desire and help, or are we at just a point with the consumer that the returns on those investments don't make sense, both for you and the industry? Thank you. Yeah. Okay. Let me hit the pricing one first. And I'm just looking at what is this? Nielsen three-month value numbers by price points. And yeah, the $100 plus is down 18%. But that's a small total volume. Obviously, that's a very small area. But interestingly, from what is this? From $10 to $30, which would comprise a huge percentage of the total, in fact, I can do that number in my head. It's about 60% or 70% of the total market is in that price range, and they're all down 4%. So that's where we say trade down.

Do you think the whole industry is doing the right advertising marketing out there to create desire and help, or are we at just a point with the consumer that the returns on those investments don't make sense, both for you and the industry? Thank you.

Speaker #10: at Or are we just a point with the consumer that the returns on those investments don't make sense ? Both for you and the Thank industry ?

Speaker #10: you .

Speaker #6: Okay . Let me hit the pricing Yeah . one first . And I'm just looking at what is it Nielsen three month value numbers by price points .

Lawson Whiting: Yeah. Okay. Let me hit the pricing one first. And I'm just looking at what is this? Nielsen three-month value numbers by price points. And yeah, the $100 plus is down 18%. But that's a small total volume. Obviously, that's a very small area. But interestingly, from what is this? From $10 to $30, which would comprise a huge percentage of the total, in fact, I can do that number in my head. It's about 60% or 70% of the total market is in that price range, and they're all down 4%. So that's where we say trade down.

Speaker #6: And yeah the $100 plus is down 18% . But that's a you know that's a small total volume . Obviously that's a very small area .

Speaker #6: interestingly But from what is this from 30 from $10 to 30 , which would comprise a huge percentage of the total . In fact , I can do that number in my head .

Speaker #6: It's about 60 or 70% of the total market is in that price range . And they're all down for so . So that's that where we say trade down $100 is down that much .

Speaker #6: And the sort of the 30 and below is all down around 4% . The higher price points , the ones in between , there are more like 6 or 7 down .

Operator: The $100 is down that much, and sort of the $30 and below is all down around 4%. The higher price points, the ones in between, are more like 6%, 7% down. So it's a pretty clear line of where the pricing environment goes and where the consumer seems to be evolving down. So what was the other question? And then on A&P, yes, we've had our philosophy that A&P spend is going to align with our depletion-based top-line growth. But we are continuing to focus on investing behind our brands, and we're focusing on maintaining and growing our share of voice, and supporting the long-term brand equity. It is important to remember we're navigating a challenging environment, and we're carefully managing all of our operating expenses. But it's important to recall that over the last five years, we have added nearly $100 million to brand expense.

The $100 is down that much, and sort of the $30 and below is all down around 4%. The higher price points, the ones in between, are more like 6%, 7% down. So it's a pretty clear line of where the pricing environment goes and where the consumer seems to be evolving down. So what was the other question?

Speaker #6: So it's a pretty clear line. You know, of where the pricing environment goes and where the consumer seems to be evolving down.

Speaker #6: So what was the other question?

Speaker #7: And then on A&P .

Speaker #6: You know .

Speaker #7: we've had Yes , our philosophy that A&P spend is going to align with our depletion based top line growth . But we are continuing to focus on investing behind our brands .

Leanne Cunningham: And then on A&P, yes, we've had our philosophy that A&P spend is going to align with our depletion-based top-line growth. But we are continuing to focus on investing behind our brands, and we're focusing on maintaining and growing our share of voice, and supporting the long-term brand equity. It is important to remember we're navigating a challenging environment, and we're carefully managing all of our operating expenses. But it's important to recall that over the last five years, we have added nearly $100 million to brand expense.

Speaker #7: And we're focusing on maintaining and growing our share of voice and supporting the long term brand equity . It is important to remember we're a challenging navigating environment and we're carefully managing all of our operating expenses , but it's important to recall that over the last five years , we have added nearly $100 million to brand expense .

Speaker #7: We continue to work to find initiatives to free up more dollars to continue to reinvest in our brands and our workforce . Restructuring was one of those initiative where we'll get when we get to the place where we can have right the level benefit , of then we will continue to increase .

Operator: We continue to work to find initiatives to free up more dollars to continue to reinvest in our brands. Our workforce restructuring initiative was one of those where when we get to the place where we can have the right level of benefit, then we will continue to increase. But again, you go back to our portfolio, it's very tight. A large portion of our portfolio falls under kind of that house of Jack. And so we feel like we get a lot of synergies with the structure of our portfolio of brands. Yeah. And then sort of the end of your question around, as an industry, I mean, I don't necessarily know. It is a difficult time, and we are testing different ways of advertising and trying to see what reactions we get. But look, the environment is as subdued as it is.

We continue to work to find initiatives to free up more dollars to continue to reinvest in our brands. Our workforce restructuring initiative was one of those where when we get to the place where we can have the right level of benefit, then we will continue to increase. But again, you go back to our portfolio, it's very tight. A large portion of our portfolio falls under kind of that house of Jack. And so we feel like we get a lot of synergies with the structure of our portfolio of brands.

Speaker #7: But again , to our you go back portfolio . It's very tight . A large portion of our portfolio falls under kind of that house of Jack .

Speaker #7: And so we feel like we get a lot of synergies with the the structure of our portfolio of brands .

Speaker #6: sort of the Yeah . And it's question around , you industry . I mean , know , as an I don't necessarily a know it is difficult time .

Lawson Whiting: Yeah. And then sort of the end of your question around, as an industry, I mean, I don't necessarily know. It is a difficult time, and we are testing different ways of advertising and trying to see what reactions we get. But look, the environment is as subd

Speaker #6: And we are testing different ways of of advertising and trying to see what reactions we get . But look , the , the environment is , is subdued as it when you've is got TDs down around four ish , it's tough to say we're going to advertise our way out of this , that we need .

Lawson Whiting: ued as it is.

Operator: When you've got TDS down around 4-ish, it's tough to say we're going to advertise our way out of this. There are other important tailwinds, I think, that will help. So we'll continue to look. We've had the same guidance for years on advertising is going to grow about with our depletion-based sales, and I think we're pretty much sticking to that over a full year. Our next question will be coming from Drew Levine. He's with JPMorgan. Your line is open. Hey, good morning. Lawson, hoping you could talk to how you're viewing performance of the rest of the Jack Daniel's family of brands following the launch of BlackBerry, what the interplay is between the brands, how you're viewing cannibalization, if it's coming in line or better than expected, and then also how that's trending internationally. You mentioned strong response in the UK, Germany, and France.

When you've got TDS down around 4-ish, it's tough to say we're going to advertise our way out of this. There are other important tailwinds, I think, that will help. So we'll continue to look. We've had the same guidance for years on advertising is going to grow about with our depletion-based sales, and I think we're pretty much sticking to that over a full year.

Speaker #6: There are other important tailwinds . I think that will help . So we'll continue to , you know , look , we've we've had the same guidance for years on advertising is going to grow about with our depletion based sales .

Speaker #6: And I think we're pretty much sticking to that over a full year .

Speaker #4: And our next question will be coming from Drew Levine. And he's with JP. Your line is open.

Operator: Our next question will be coming from Drew Levine. He's with JPMorgan. Your line is open.

Speaker #11: Hey . Good morning Lawson . Hoping you could talk to how you're viewing performance of the rest of the Jack Daniel's brands family of following the launch of BlackBerry .

Drew Levine: Hey, good morning. Lawson, hoping you could talk to how you're viewing performance of the rest of the Jack Daniel's family of brands following the launch of BlackBerry, what the interplay is between the brands, how you're viewing cannibalization, if it's coming in line or better than expected, and then also how that's trending internationally. You mentioned strong response in the UK, Germany, and France.

Speaker #11: Can you explain the interplay between the brands? How are you viewing cannibalization? If it's occurring, is it coming in line with expectations or better than expected?

Speaker #11: And then also how that's trending internationally . You mentioned strong response in U.K. , Germany and France . How incremental has BlackBerry been in those markets .

Speaker #11: And then if you could talk to additional market launches in thanks .

Operator: How incremental has BlackBerry been in those markets? And then if you could talk to additional market launches in 2026. Thanks. Yeah. So look, it's only been three months. So it is difficult to draw on, is it impacting Black Label or is it impacting the rest of your flavors? So historically, they haven't been that much. The cannibalization has been minimal. We do recognize every time you do a new one that you're going to turn up that a little bit. But in the first 90 days, we don't really know yet. So now the whole plan for BlackBerry over the next couple of years, we obviously have launched in the United States. We've launched in a handful of markets in Europe, but we are not global by any means yet.

How incremental has BlackBerry been in those markets? And then if you could talk to additional market launches in 2026. Thanks.

Speaker #6: So Yeah . look , it's only been three months . So it is difficult to draw on , you know , how is it impacting Black Label or is it impacting impacting the rest of your flavors .

Lawson Whiting: Yeah. So look, it's only been three months. So it is difficult to draw on, is it impacting Black Label or is it impacting the rest of your flavors? So historically, they haven't been that much. The cannibalization has been minimal. We do recognize every time you do a new one that you're going to turn up that a little bit. But in the first 90 days, we don't really know yet. So now the whole plan for BlackBerry over the next couple of years, we obviously have launched in the United States. We've launched in a handful of markets in Europe, but we are not global by any means yet.

Speaker #6: So historically the they haven't been that much the cannibalization has been minimal . We do recognize every time you do a new one that you're going to turn up that a little bit .

Speaker #6: But days I first 90 in the can't I we don't really know yet . So now the whole , you know , the , the plan for BlackBerry over , you know , over the next couple of years , we obviously have launched in the United States .

Speaker #6: We've launched in a handful of markets in Europe , but we are not global by any means yet . And so our our , our goal or our benefit for this is to make it a multi-year benefit to the just a company , not , you know , not couple of quarters or just a even a one year .

Operator: And so our goal or our benefit for this is to make it a multi-year benefit to the company, not just a couple of quarters or even a one year. And that's one of the major, major benefits that Jack Daniel's has over so many of its competitors in the flavor conversation is because it is so global. We also haven't done all sizes. I mean, there's lots of things that we're doing to try to stretch the launch out to be a benefit for some period of time. And we know that especially when you do a launch like this, it benefits the whole portfolio or the whole Jack Daniel's family of brands because we get a lot of incremental displays.

And so our goal or our benefit for this is to make it a multi-year benefit to the company, not just a couple of quarters or even a one year. And that's one of the major, major benefits that Jack Daniel's has over so many of its competitors in the flavor conversation is because it is so global. We also haven't done all sizes. I mean, there's lots of things that we're doing to try to stretch the launch out to be a benefit for some period of time. And we know that especially when you do a launch like this, it benefits the whole portfolio or the whole Jack Daniel's family of brands because we get a lot of incremental displays.

Speaker #6: And that's one of the major , major benefits that Jack has over so many of its competitors in in the flavor conversation is because it is so global .

Speaker #6: We haven't done all sizes . I mean , there's lots of things that we're doing to to try stretch , you know , stretch the launch to be a out benefit for some period of time .

Speaker #6: So and we know that especially when you do a launch like this , it benefits the whole . Portfolio or the whole Jack Daniel's family of brands , because we get a lot of incremental displays .

Speaker #6: So that was the comment about Tesco and some of the others in France and Germany, where they all want to get on board with this big launch, and then that kind of sucks in the rest of the portfolio around it.

Operator: So that was the comment about Tesco and some of the others in France and Germany where they all want to get on board at this big launch, and then that kind of sucks in the rest of the portfolio around it. And so right now, we're pleased. We really are. We've gotten good consumer feedback. We've got great trade feedback, and I feel like we've got a very successful innovation. And then one last detail to your question about the markets. Again, as you know, we launched in the US in August. This fall, we are launching in the UK, France, Germany, Poland, Czechia, Turkey, and GTR, just so you have that information. But we didn't go to a place like Brazil or US. Oh, absolutely. A lot of others. It's more developed Europe at this point that are huge flavor markets for us.

So that was the comment about Tesco and some of the others in France and Germany where they all want to get on board at this big launch, and then that kind of sucks in the rest of the portfolio around it. And so right now, we're pleased. We really are. We've gotten good consumer feedback. We've got great trade feedback, and I feel like we've got a very successful innovation. And then one last detail to your question about the markets. Again, as you know, we launched in the US in August. This fall, we are launching in the UK, France, Germany, Poland, Czechia, Turkey, and GTR, just so you have that information. But we didn't go to a place like Brazil or US. Oh, absolutely. A lot of others. It's more developed Europe at this point that are huge flavor markets for us.

Speaker #6: And so right now we're we are we're pleased . We really are . We've gotten good We've got feedback . great consumer trade feedback and feel like we've got a very successful innovation .

Speaker #7: And then the one last detail to your question about the markets again , we we as you know , launched in the US in August this fall , we are launching in the UK , France , Germany , Poland , Czechia , Turkey , A and GTR .

Speaker #7: Just so you have that information .

Speaker #6: But we didn't go to a place like Brazil or.

Speaker #7: O . Absolutely .

Speaker #6: A lot of . It's more others developed .

Speaker #7: Europe at this point .

Speaker #6: That are , you know , huge flavor markets for us .

Speaker #4: next And our question will be coming from Chris Pitcher of Rothschild and Rothschild Company in Redburn . Your line is open .

Operator: Our next question will be coming from Chris Pitcher of Redburn and Rothschild & Co. Your line is open. Thank you very much. Follow up on the reduced CapEx outlook. It still looks like it's a sort of a growth number ahead of depreciation. But in terms of barrels being purchased and warehouse space being expanded, can we read into that that you're probably getting to a stage now where you're going to maintain or perhaps even reduce the value of your barrels of whiskeys? Obviously, we'll get a bit more color with the 10Q. Thanks so much. Yeah. I mean, from a capacity perspective, from a CapEx perspective, we currently have the distilling, warehousing, and bottling capacities that we need to support the future demand that we look out to. And that was one of the reasons why we were able to reduce our capital expenditure outlook.

Operator: Our next question will be coming from Chris Pitcher of Redburn and Rothschild & Co. Your line is open.

Speaker #12: Thank you very much. Following up on the reduced CapEx outlook, it still looks like it's a sort of a growth number ahead of depreciation.

Chris Pitcher: Thank you very much. Follow up on the reduced CapEx outlook. It still looks like it's a sort of a growth number ahead of depreciation. But in terms of barrels being purchased and warehouse space being expanded, can we read into that that you're probably getting to a stage now where you're going to maintain or perhaps even reduce the value of your barrels of whiskeys? Obviously, we'll get a bit more color with the 10Q. Thanks so much.

Speaker #12: in But terms of barrels being purchased and warehouse space being expanded , can we read into that that you're probably getting to a stage now where you're going to maintain or perhaps even reduce the value of your barrel whiskeys ?

Speaker #12: Obviously we'll get a bit more color with the the 10-q . Thanks very much .

Speaker #7: I Yeah . mean , from capacity perspective , from a CapEx perspective , we currently have the distilling bottling , warehousing and capacities that we need to support the future demand that we look out to .

Leanne Cunningham: Yeah. I mean, from a capacity perspective, from a CapEx perspective, we currently have the distilling, warehousing, and bottling capacities that we need to support the future demand that we look out to. And that was one of the reasons why we were able to reduce our capital expenditure outlook.

Speaker #7: And that was one of the reasons why we were able to reduce our capital expenditure outlook . And then from an inventory perspective , as been sharing with we have you for several through quarters all F 25 .

Operator: And then from an inventory perspective, as we have been sharing with you for several quarters, all through F25 and even into F26, with the volatility that was caused through the pandemic and supply chain challenges that we had, we're in a position where we are producing at lower levels. We have been very clear about that and the impact that's having on cost as we are trying to reduce our finished goods inventory levels that we have around the world. We have made really good progress on that, but we still have to work through some of the strategic tariff mitigation inventories we had out there. And we also took in finished goods inventory to support the new agency brand business that we have. And then from a barrel whiskey perspective, if you look kind of consecutively over the last few quarters, it continues to moderate.

And then from an inventory perspective, as we have been sharing with you for several quarters, all through F25 and even into F26, with the volatility that was caused through the pandemic and supply chain challenges that we had, we're in a position where we are producing at lower levels. We have been very clear about that and the impact that's having on cost as we are trying to reduce our finished goods inventory levels that we have around the world. We have made really good progress on that, but we still have to work through some of the strategic tariff mitigation inventories we had out there. And we also took in finished goods inventory to support the new agency brand business that we have. And then from a barrel whiskey perspective, if you look kind of consecutively over the last few quarters, it continues to moderate.

Speaker #7: And even into F26, with the volatility that was caused through the pandemic and supply chain challenges that we had, we're in a position where we are producing at lower levels.

Speaker #7: We have been very clear about that and the impact that it's having on cost . As we are trying to reduce our finished inventory goods levels that we have around the world , we have made really good progress on that as it's still have but we to work through some of the strategic tariff mitigation inventories .

Speaker #7: We had our inventory and we also took there in finished goods inventory to support the new agency brand business that we have. And then from a barrel whiskey perspective, if you look kind of consecutively over the last few quarters, it continues to moderate.

Speaker #7: And again , that is just us adjusting to the long term demand that we see against the supply that we have . And so with some of the performance levels that we have , we have the ability to balance those as we go forward .

Operator: And again, that is just us adjusting to the long-term demand that we see against the supply that we have. And so with some of the performance levels that we have, we have the ability to balance those as we go forward. Yeah. Let me just add to that a little bit. You'll notice we did create a Schedule E in our earnings release to get everybody's eyes a little more focused on free cash flow because we do see some opportunities going forward with lower levels of CapEx going forward. And as we wind down or work through the inventory that we have, it's a material change and some good news in terms of benefits to the balance sheet, and just a free cash flow. So yeah, we feel pretty good about the outlook there. One moment for our next question.

And again, that is just us adjusting to the long-term demand that we see against the supply that we have. And so with some of the performance levels that we have, we have the ability to balance those as we go forward.

Speaker #6: Yeah . Let me just add to that a little bit . You'll notice we did create a schedule E in our earnings release to get everybody's eyes a little more focused on free cash flow , because we do see some opportunities going forward with lower levels of CapEx going forward .

Lawson Whiting: Yeah. Let me just add to that a little bit. You'll notice we did create a Schedule E in our earnings release to get everybody's eyes a little more focused on free cash flow because we do see some opportunities going forward with lower levels of CapEx going forward. And as we wind down or work through the inventory that we have, it's a material change and some good news in terms of benefits to the balance sheet, and just a free cash flow. So yeah, we feel pretty good about the outlook there.

Speaker #6: And as we down wind or , work through the inventory that we have , it's a material a it's change . And , you know , some good news in terms of benefits to the , you balance sheet and just a free cash flow .

Speaker #6: So yeah , we feel pretty good about the outlook there .

Speaker #4: And one moment for our next question our next question will be coming from Andrea Pistaciae of Bank of America . Your line is open .

Operator: One moment for our next question.

Operator: Our next question will be coming from Andrea Pistacchi of Bank of America. Your line is open. Yes. Thank you for the question. My question is on cost savings, actually. So your SG&A in Q2, if I calculate more or less correctly, I think declined around 1% to 2%. And the run rate in recent quarters had been more than that, more like 6% to 7%. So could you comment, please, on the momentum of your cost-saving initiatives, particularly as we go into the second half when you'll be lapping some of the more substantial initiatives that you've taken in the last 12 months? And I mean, this is relevant given the environment which remains. Visibility remains low, so timing of improvement of top line is still a bit uncertain.

Our next question will be coming from Andrea Pistacchi of Bank of America. Your line is open.

Speaker #13: Yes Thank you for the . question . Thank you . My on question is on cost savings . So your . Actually your G&A in Q2 , if I calculate more or less correctly , I think declined around one one and the run rate in recent 2% quarters had been more than that , more like six , six , 7% .

Andrea Pistacchi: Yes. Thank you for the question. My question is on cost savings, actually. So your SG&A in Q2, if I calculate more or less correctly, I think declined around 1% to 2%. And the run rate in recent quarters had been more than that, more like 6% to 7%. So could you comment, please, on the momentum of your cost-saving initiatives, particularly as we go into the second half when you'll be lapping some of the more substantial initiatives that you've taken in the last 12 months? And I mean, this is relevant given the environment which remains. Visibility remains low, so timing of improvement of top line is still a bit uncertain.

Speaker #13: So could you comment please on the momentum of your cost saving initiatives , particularly as we go into the second half when you'll be lapping some of the more substantial initiatives that you've taken in the last , in the last 12 months .

Speaker #13: And I mean , this is relevant given the the environment . Which remains visibility remains low . So timing of improvement of top line is still a bit uncertain .

Speaker #13: I just wanted to hear about your ability to potentially accelerate savings in this environment, and whether maybe there were any one-off factors in the SG&A in H1 Q2.

Operator: So just wanted to hear about your ability to potentially accelerate savings in this environment and whether maybe there were any one-off factors in the SG&A in H1, Q2? Thank you. Okay. For SG&A, it really is about the year-ago period as we were beginning to envision what our new, evolved, streamlined, simplified workforce structure would be. Ahead of that announcement, there were a large number of open roles in the year-ago period, as well as an adjustment to our full-year compensation expectations. So that's why you're seeing that kind of negative 1% first half in this first half of this year. We'll continue to see some benefits as we go forward in the year-ago period, but you are correct that it will begin to moderate as we lap that mid-January announcement and really that fourth quarter of last year benefit that we'll be lapping from an SG&A perspective.

So just wanted to hear about your ability to potentially accelerate savings in this environment and whether maybe there were any one-off factors in the SG&A in H1, Q2? Thank you.

Speaker #13: Thank you .

Speaker #7: Okay . For SG&A , it really is about the year ago period . we As were beginning to envision what our evolved new , streamlined , simplified workforce structure would be ahead of that announcement , there were a large number of open roles in the year ago period as well as an adjustment our to full year compensation expectations .

Leanne Cunningham: Okay. For SG&A, it really is about the year-ago period as we were beginning to envision what our new, evolved, streamlined, simplified workforce structure would be. Ahead of that announcement, there were a large number of open roles in the year-ago period, as well as an adjustment to our full-year compensation expectations. So that's why you're seeing that kind of negative 1% first half in this first half of this year. We'll continue to see some benefits as we go forward in the year-ago period, but you are correct that it will begin to moderate as we lap that mid-January announcement and really that fourth quarter of last year benefit that we'll be lapping from an SG&A perspective.

Speaker #7: So that's why you're seeing that kind of negative one first half in this in this first half of this year , we'll continue to see some benefits as we go forward in the go .

Speaker #7: But you are correct that it year to will begin to moderate as we lap that January mid January announcement . And really that fourth quarter of last year benefit that will be lapping from an G&A perspective .

Speaker #7: We continue as we had previously in our prepared remarks. We are doing, in this environment, everything to carefully and tightly manage and control all of our operating expenses and controllable costs where that is available.

Operator: We continue, as we had previously said in our prepared remarks, we are doing in this environment everything to carefully and tightly manage and control all of our operating expenses and controllable costs where that is available. Our next question will be coming from Steve Powers of Deutsche Bank. Steve, your line is open. Good morning, everybody. Great. Good morning. Thank you. Lawson, again, in the first half, the shipments across your total business came in slightly ahead of depletions, as you've highlighted. I guess, is it fair to assume that that reverses and that shipments and depletions end up the year essentially in line? Or because of those distributor term favorability items and progressive launches of BlackBerry, etc., is it otherwise fair to assume that you end up maybe a little bit ahead on shipments versus depletions? Curious on that.

We continue, as we had previously said in our prepared remarks, we are doing in this environment everything to carefully and tightly manage and control all of our operating expenses and controllable costs where that is available.

Speaker #4: And our next question will be coming from Steve Powers of Deutsche Bank . Steve , your line is .

Operator: Our next question will be coming from Steve Powers of Deutsche Bank. Steve, your line is open. Good morning, everybody. Great. Good morning. Thank you. Lawson, again, in the first half, the shipments across your total business came in slightly ahead of depletions, as you've highlighted. I guess, is it fair to assume that that reverses and that shipments and depletions end up the year essentially in line? Or because of those distributor term favorability items and progressive launches of BlackBerry, etc., is it otherwise fair to assume that you end up maybe a little bit ahead on shipments versus depletions? Curious on that.

Speaker #14: Morning , everybody . Great . Good morning . Thank you . Lawson began in the first half , the shipments across your total business came in slightly ahead of depreciation of Depletions .

Speaker #14: As you've I guess . Is highlighted . it is it fair to assume that that that reverses and that shipments ends ? Depletions end up the year essentially in line or because of those distributor term favorability items and progressive launches of BlackBerry of , etc.

Speaker #14: , is it is it otherwise fair to assume that you end up maybe a little bit ahead on shipments versus depletions curious on that .

Speaker #14: And if you could , within that , I don't know how far you can go on this , but any , any quantification of the size of those distributor term benefits or any details on exactly what you may have been able to kind of carve out in terms of , you know , what makes up those benefits would be would be helpful .

Operator: If you could, within that, I don't know how far you can go on this, but any quantification of the size of those distributor term benefits or any details on exactly what you may have been able to kind of carve out in terms of what makes up those benefits would be helpful. Thank you. Okay. Well, I will start with your comment on shipments versus depletions. And again, like we said, we expected stronger shipments in our first half because we had to load in the new distributors in the US, and we were launching Jack Daniel's Tennessee BlackBerry. We said in our last call that we expected that to moderate as we got to the first half and that our first half top-line organic sales would be in line with our guidance.

If you could, within that, I don't know how far you can go on this, but any quantification of the size of those distributor term benefits or any details on exactly what you may have been able to kind of carve out in terms of what makes up those benefits would be helpful.

Speaker #14: Thank you .

Speaker #7: Okay . I Well , start with will your comment on shipments versus depletions . And again , like we said , we expected stronger shipments in our first half because we had to load in the new distributors in the US .

Leanne Cunningham: Thank you. Okay. Well, I will start with your comment on shipments versus depletions. And again, like we said, we expected stronger shipments in our first half because we had to load in the new distributors in the US, and we were launching Jack Daniel's Tennessee BlackBerry. We said in our last call that we expected that to moderate as we got to the first half and that our first half top-line organic sales would be in line with our guidance.

Speaker #7: Now , here we are today a little bit better than that . And that is after the more than two points in from Canada and used barrels .

Operator: Now, here we are today a little bit better than that, and that is after the more than two points of impact from Canada and used barrels. But that's really about Jack Daniel's Tennessee BlackBerry exceeding our expectations. We do expect that for the full year, the gap between shipments and depletions will narrow. And if you look at the gap at where we were at Q1 and where we are at the first half, it has already narrowed significantly. We expect for it to narrow more, but except to the extent of the continued launch in this year of Jack Daniel's Tennessee BlackBerry. So those shipments might be slightly ahead of depletions.

Now, here we are today a little bit better than that, and that is after the more than two points of impact from Canada and used barrels. But that's really about Jack Daniel's Tennessee BlackBerry exceeding our expectations. We do expect that for the full year, the gap between shipments and depletions will narrow. And if you look at the gap at where we were at Q1 and where we are at the first half, it has already narrowed significantly. We expect for it to narrow more, but except to the extent of the continued launch in this year of Jack Daniel's Tennessee BlackBerry. So those shipments might be slightly ahead of depletions.

Speaker #7: But that's really about Jack Daniel's Tennessee BlackBerry exceeding our expectations . We do expect that for the full , the gap between year shipments and depletions And we were will narrow .

Speaker #7: And if you look at the gap between where we were at Q1 and where we are at the first half , it is already narrowed significantly .

Speaker #7: We expect for it to narrow more , but except to the extent of the continued launch in this year of Jack Daniel's Tennessee BlackBerry , those shipments might be a slightly ahead of Depletions .

Speaker #7: One thing that I will say that we have to keep in mind as we go into the year ago period from an organic top line perspective , is that new mix , which has been one of our strongest drivers of growth in the second half , we'll begin to comp and compare against those very strong double digit growth percentages that we saw in the year ago period .

Operator: One thing that I will say that we have to keep in mind as we go into the year-ago period from an organic top-line perspective is that New Mix, which has been one of our strongest drivers of growth in the second half, will begin to comp and compare against those very strong double-digit growth percentages that we saw in the year-ago period. So we'll just have to keep that in mind as we look in the year-ago period. And then your other was the benefit from distributor terms. We haven't been specific to that other than to say our expectations are we'll have greater focus, more dedication, distributor investment on behalf of our brands, and kind of better terms. And we are seeing the benefit of those flow-throughs, but we haven't been more specific than that. Okay. One moment for our next question.

One thing that I will say that we have to keep in mind as we go into the year-ago period from an organic top-line perspective is that New Mix, which has been one of our strongest drivers of growth in the second half, will begin to comp and compare against those very strong double-digit growth percentages that we saw in the year-ago period. So we'll just have to keep that in mind as we look in the year-ago period. And then your other was the benefit from distributor terms. We haven't been specific to that other than to say our expectations are we'll have greater focus, more dedication, distributor investment on behalf of our brands, and kind of better terms. And we are seeing the benefit of those flow-throughs, but we haven't been more specific than that.

Speaker #7: So it just have will to keep that in mind as we look in the year to go period . And then your other was the benefit from distributor terms .

Speaker #7: We haven't been specific to that other than to say our expectations are we'll have greater focus . More dedication . We , you know , distributor investment behalf of on the our brand and kind of better terms .

Speaker #7: And we are seeing the benefit of those flow-through. But we haven't been more specific than that.

Speaker #4: Thank you. One moment for our next question. Our next question will be coming from Filippo Falorni of Citi. Your line is open.

Operator: Okay. One moment for our next question.

Speaker #15: Hi . Good morning everyone . I have two questions . The first one on on emerging markets clearly still solid double digit year to date .

Operator: Our next question will be coming from Filippo Falorni of Citi. Your line is open. Hi. Good morning, everyone. I have two questions. The first one on emerging markets. It clearly still saw a double-digit year-to-date, but if I compare to the year-to-date in Q1 of 25%, it implies a big deceleration in Q2. So maybe can you walk us through what drove that deceleration? And to your point, Leanne, as we think about the second half of the year cycling tougher, New Mix comes, what are your expectations on emerging markets for the second half? And then my second question is on gross margins. Can you help us understand the puts and takes in the second half? Obviously, you're still going to have the Korbel benefit flowing through from an acquisition, the divestiture line, the TSA should be largely done.

Our next question will be coming from Filippo Falorni of Citi. Your line is open.

Filippo Falorni: Hi. Good morning, everyone. I have two questions. The first one on emerging markets. It clearly still saw a double-digit year-to-date, but if I compare to the year-to-date in Q1 of 25%, it implies a big deceleration in Q2. So maybe can you walk us through what drove that deceleration? And to your point, Leanne, as we think about the second half of the year cycling tougher, New Mix comes, what are your expectations on emerging markets for the second half? And then my second question is on gross margins. Can you help us understand the puts and takes in the second half? Obviously, you're still going to have the Korbel benefit flowing through from an acquisition, the divestiture line, the TSA should be largely done.

Speaker #15: But if I compare to the year to date in Q1 of 25% , it implies a big deceleration in Q2 . So maybe can you walk us through what drove those that and to your point , as we think Leanne , about the second half of the year , cycling tougher new mix comps , what are your expectations on emerging markets for the second half ?

Speaker #15: And then my second question is on gross margins . Can you help us understand the puts and takes in the second half ? Obviously you're still going to have the core benefit through flowing from an acquisition divestiture line .

Speaker #15: The TSA should be largely done. And then maybe on the commodity costs environment, should we see some benefits from agave in the back half?

Operator: And then maybe on the commodity cost environment, should we see some benefits from agave in the back half? And is the expectation still for gross margin expansion for the year? Thank you. Okay. Great. Well, I'll start with, it's always dangerous from an emerging markets perspective. It's always dangerous to kind of look at one quarter. We never had the expectation that emerging markets were going to stay at a +25%. We're very pleased at the end of the first half. We are at a +12%. There was just some timing in there. There's so many great things to talk about, and we tried to share them in our prepared remarks, which Mexico is doing great with New Mix being boosted by strong takeaway and gaining share. And we've got the emerging brands.

And then maybe on the commodity cost environment, should we see some benefits from agave in the back half? And is the expectation still for gross margin expansion for the year? Thank you.

Speaker #15: And is the expectation still for gross margin expansion for the year? Thank you.

Speaker #7: Okay , great . Well , I'll start with it's always dangerous from on an emerging markets perspective . It's always dangerous to kind of look at one quarter .

Leanne Cunningham: Okay. Great. Well, I'll start with, it's always dangerous from an emerging markets perspective. It's always dangerous to kind of look at one quarter. We never had the expectation that emerging markets were going to stay at a +25%. We're very pleased at the end of the first half. We are at a +12%. There was just some timing in there. There's so many great things to talk about, and we tried to share them in our prepared remarks, which Mexico is doing great with New Mix being boosted by strong takeaway and gaining share. And we've got the emerging brands.

Speaker #7: never had the We that emerging markets were going stay at a plus 25 . We're very pleased at the end of the first half , we are at a plus 12 .

Speaker #7: There was just some timing in there . There's so many great things to talk about and we and we try to share them in our prepared remarks , which Mexico is doing great with .

Speaker #7: New mix being boosted by strong takeaway and gaining share . And we've got the emerging brands . Brazil continues to be a very strong market for us as we are geographically and we expanding have the growth of Tennessee whiskey and Jack Daniel's apple and our super premium .

Operator: Brazil continues to be a very strong market for us as we are geographically expanding, and we have the growth of Jack Daniel's Tennessee Whiskey, Jack Daniel's Tennessee Apple, and our super premium. We expect those things to continue. They may moderate more as we go through the year. Specifically, like I just mentioned, with New Mix being one of our largest contributors to growth, as we get to that second half, it will begin to comp those very strong prior year growth rates in the second half. We're really pleased with our emerging market growth to date, and it will continue to be a growth driver for us for the full year.

Brazil continues to be a very strong market for us as we are geographically expanding, and we have the growth of Jack Daniel's Tennessee Whiskey, Jack Daniel's Tennessee Apple, and our super premium. We expect those things to continue. They may moderate more as we go through the year. Specifically, like I just mentioned, with New Mix being one of our largest contributors to growth, as we get to that second half, it will begin to comp those very strong prior year growth rates in the second half. We're really pleased with our emerging market growth to date, and it will continue to be a growth driver for us for the full year.

Speaker #7: We expect those things to continue . They may moderate more as we go through the year , and specifically with I just mentioned , with new Mix being one of our largest contributors to growth , as we get to that second half , it will begin to comp those very strong prior year growth rates in the second half .

Operator: Then to your gross margin question, as we look at the full year, we do expect to continue to benefit, like we said, from A&D, which is the absence of Korbel, and the prior year Sonoma-Cutrer TSA being completed. From our price mix perspective, we continue to benefit from our long-term pricing strategy that Lawson just spoke of. And we'll continue to have positive portfolio mix from Jack Daniel's Tennessee BlackBerry, and then those higher net pricing across the US from our distributor relationship terms we talked about. But due to agency brands, RTDs, and lower gross margins or lower used barrel sales, we do expect that to be a headwind for us.

Then to your gross margin question, as we look at the full year, we do expect to continue to benefit, like we said, from A&D, which is the absence of Korbel, and the prior year Sonoma-Cutrer TSA being completed. From our price mix perspective, we continue to benefit from our long-term pricing strategy that Lawson just spoke of. And we'll continue to have positive portfolio mix from Jack Daniel's Tennessee BlackBerry, and then those higher net pricing across the US from our distributor relationship terms we talked about. But due to agency brands, RTDs, and lower gross margins or lower used barrel sales, we do expect that to be a headwind for us.

Then to your gross margin. Um question um as we look at at the full year we do expect to continue to benefit like we said from A and D which is the absence of Korbel and the prior year Sonoma catcher, TSA being completed.

From.

Operator: We do expect as well continued pressure from input cost, whether we will have some benefit from lower agave cost, but that will be more than offset by higher input inflation costs on our inputs and lower production volume as we continue to reduce our finished goods inventory that we've talked about to reduce the working capital intensity on our balance sheet. But net-net, for the full year, we do expect A&D will more than offset the headwinds of the negative price mix. And then to your very last piece, which is on our commodities. From a commodities pricing perspective, it's kind of returned to more historical, in line with more historical inflation rates. Even wage and general inflation are now closer.

We do expect as well continued pressure from input cost, whether we will have some benefit from lower agave cost, but that will be more than offset by higher input inflation costs on our inputs and lower production volume as we continue to reduce our finished goods inventory that we've talked about to reduce the working capital intensity on our balance sheet. But net-net, for the full year, we do expect A&D will more than offset the headwinds of the negative price mix. And then to your very last piece, which is on our commodities. From a commodities pricing perspective, it's kind of returned to more historical, in line with more historical inflation rates. Even wage and general inflation are now closer.

Jack, Daniels, Tennessee blackberry and then those higher net pricing across the us from our distributor relationship terms. We talked about, but due to agency Brands rtds, and lower gross, margins are lower, used Barrel sales. Uh, we do expect that to be a headwind for us and we do expect, as well. Um, continued pressure from input cost, whether, um, we will have some benefit from lower Agave cost but uh, that will be more than offset by higher, um, input inflation cost on our inputs and lower production volume. As we continue to reduce the, our finished goods, inventory that we've talked about, to reduce the working capital intensity, on our balance sheet, but net net. For the full year, we do expect A and D will more than offset, the headwinds of the negative price, mix

Operator: With agave, there is a benefit to our cost, but it remains high because with the slowing of our demand, it is taking us longer to work through the high-cost bulk tequila that we have, the aging inventory, and the finished goods. Wood we've talked about. It is fully outsourced now, and we will see benefits to that in the future, but that will take a period of time as it moves through our aging process. Grains are continuing to be a little bit favorable, and we are seeing a kind of steady pricing to a slight decline. Then our glass is forecasted to be a little bit higher, but that's largely related to the cost of natural gas. Our next question will be coming from Kevin Grundy of BNP Paribas. Your line is open. Great. Thanks. Morning, everyone. Nice to see you at the investor day recently.

With agave, there is a benefit to our cost, but it remains high because with the slowing of our demand, it is taking us longer to work through the high-cost bulk tequila that we have, the aging inventory, and the finished goods. Wood we've talked about. It is fully outsourced now, and we will see benefits to that in the future, but that will take a period of time as it moves through our aging process. Grains are continuing to be a little bit favorable, and we are seeing a kind of steady pricing to a slight decline. Then our glass is forecasted to be a little bit higher, but that's largely related to the cost of natural gas.

And then to your very last piece, which is on our Commodities from a Commodities pricing perspective, you know, it it's kind of returned to more historical in line with more historical, inflation rates, even wage and uh, General inflation. Are now closer with, um, our gave there is a benefit to our cause, but it remains High. Because with the slowing of our demand, it is taking us longer to work through the high cost. Bulk tequila that we have the Aging inventory and the Finish Goods.

Would we've talked about it is fully outsourced now and we will see benefits to that in the future, but that will take a period of time as it moves through our aging process.

Operator: Our next question will be coming from Kevin Grundy of BNP Paribas. Your line is open.

Grains are um continuing to be a little bit favorable and we are seeing a kind of steady pricing to a slight Decline and then our glass is forecasted to be a little bit higher but that's largely related to the cost of natural gas.

And our next question will be coming from Kevin Grundy.

Operator: Great. Thanks. Morning, everyone. Nice to see you at the investor day recently.

Of PNP BNP paribus, your line is open.

Operator: Two-part question for me, if you indulge here. Just first on the near term, so the organic sales, both on the top line, the organic sales guidance implies down low to mid-single digits in the back half of the year. Just wanted to kind of get your sense of where you think you fall out within the range, given all the moving parts that we talked about, some narrowing of the gap with shipments and depletions with distributor changes, etc. So that would be number one. And then number two, and Lawson, this may bump up against the structural versus cyclical sort of debate, but it's kind of the elephant in the room and worth getting your updated thoughts. What's the level of confidence on the building blocks that Brown-Forman can get back to growth? Very specifically, what macro and micro factors are you looking at?

Two-part question for me, if you indulge here. Just first on the near term, so the organic sales, both on the top line, the organic sales guidance implies down low to mid-single digits in the back half of the year. Just wanted to kind of get your sense of where you think you fall out within the range, given all the moving parts that we talked about, some narrowing of the gap with shipments and depletions with distributor changes, etc. So that would be number one. And then number two, and Lawson, this may bump up against the structural versus cyclical sort of debate, but it's kind of the elephant in the room and worth getting your updated thoughts. What's the level of confidence on the building blocks that Brown-Forman can get back to growth? Very specifically, what macro and micro factors are you looking at?

Operator: I know you're engaging with your consumers constantly. What are they telling you? What are you getting in consumer surveys, etc.? Is an entirely cyclical dynamic, and there's not something more structural going on? Because as you're very well aware, I mean, there's no shortage of sort of data points out there, whether this is cannabis, health and wellness, and consumers moving away, etc. So anything you can do there to kind of reaffirm, I guess, confidence that the spirits industry is not sort of going to perpetually be in sector decline? Thanks for all that. You want me to start with the structural cyclical? My favorite one. Look, I mean, to be honest, we spent a lot of time last quarter talking about this, and there's not that much new information out there.

I know you're engaging with your consumers constantly. What are they telling you? What are you getting in consumer surveys, etc.? Is an entirely cyclical dynamic, and there's not something more structural going on? Because as you're very well aware, I mean, there's no shortage of sort of data points out there, whether this is cannabis, health and wellness, and consumers moving away, etc. So anything you can do there to kind of reaffirm, I guess, confidence that the spirits industry is not sort of going to perpetually be in sector decline? Thanks for all that.

Great. Thanks morning, everyone. Uh, nice to see you at the investor day recently, um, 2-part question for me, uh, if you indulge here just first on the near term. So the organic sales, both on the top line, uh, the organic sales got in some flies down low to mid single digits in the back half of the Year. Just wanted to kind of get your sense of where you think you'll fall out within the range, giving all the moving parts that we talked about some narrowing up the the Gap with, uh, with ships and depletes with the distributor changes, Etc. So that would be number 1 and then number 2, uh, in loss of, this may bump up against the structural versus cyclical sort of debate. But, you know, it's kind of the elephant in the room and, and, and worth getting your updated. Thoughts. What's, what's the level of confidence on on the building blocks that brown Foreman can get back to growth? I mean, very, very specifically. What macro and micro factors? Are you looking at? I know you're engaging with your consumers constantly. What are the

They telling you what are you getting in in consumer surveys, Etc.

Is an entirely cyclical dynamic, and there's not something more structural going on? Because, as you're very well aware, I mean, there's no shortage of sort of data points out there, whether this is cannabis health and wellness, consumers moving away, etc. So, anything you can do there to kind of reaffirm, I guess, confidence that the spirits industry is not sort of going to perpetually be in sector decline? Thanks for all that.

Lawson Whiting: You want me to start with the structural cyclical? My favorite one. Look, I mean, to be honest, we spent a lot of time last quarter talking about this, and there's not that much new information out there.

Operator: In terms of what hit the media, I think at least in the last even few weeks around GLP-1s becoming a bigger factor, the potential for an oral, for a pill as opposed to taking the shot, is that going to increase the number of people on it? I mean, that's a future thing. That's not a today thing. So there's a headwind there. The cyclical one I talked about earlier around the trade down and some of those, I think, is a real factor going on right there. But the rest of it is kind of about the same. It's somewhere in the middle. To say we're seeing a lot of green shoots right now, I mean, you can't say that about the US spirits market in aggregate. I think we've said this morning that our own performance is getting better. So congratulations to the teams for that.

In terms of what hit the media, I think at least in the last even few weeks around GLP-1s becoming a bigger factor, the potential for an oral, for a pill as opposed to taking the shot, is that going to increase the number of people on it? I mean, that's a future thing. That's not a today thing. So there's a headwind there. The cyclical one I talked about earlier around the trade down and some of those, I think, is a real factor going on right there. But the rest of it is kind of about the same. It's somewhere in the middle. To say we're seeing a lot of green shoots right now, I mean, you can't say that about the US spirits market in aggregate. I think we've said this morning that our own performance is getting better. So congratulations to the teams for that.

You asked to start with the structural cycle? My favorite one, um, look. I mean, to be honest, we spent a lot of time last quarter talking about this and there's not that much new information out there. Um, you know, in terms of what hit the media, I think at least in the last even few weeks, around GOP's becoming a bigger factor of the potential for an oral, you know, for a pill, as opposed to taking the shot, is that going to increase the number of people on it? I mean, that's a future thing. That's not.

That's not a today thing so that you know there's a headwind there. The cyclical 1. I talked about earlier around the trade down and some of those I think, um, you know, is a real Factor going on right there, but the rest of it is kind of about the same. It's somewhere in the middle. Um, you know, to say we're seeing a lot of green shoots right now. I mean, I I I I you can't say that about the US Spirits Market in aggregate.

Operator: But I honestly don't think the environment has changed that much over the last quarter in terms of a structural cyclical argument. Yeah. And then I would say to your last question, Kevin, on the top line, I would say with the volatility that continues to be in the marketplace and the operating environment, we're not at a place where we are narrowing our top-line range. It does assume here we set it flat at the end of the first half. We do expect it to continue to moderate and to come in line with our guidance. And that is about some of the things we've talked about today, which is we've loaded in a lot of our initial inventory for the Jack Daniel's Tennessee BlackBerry launch and our new distributors in the US.

But I honestly don't think the environment has changed that much over the last quarter in terms of a structural cyclical argument.

Leanne Cunningham: Yeah. And then I would say to your last question, Kevin, on the top line, I would say with the volatility that continues to be in the marketplace and the operating environment, we're not at a place where we are narrowing our top-line range. It does assume here we set it flat at the end of the first half. We do expect it to continue to moderate and to come in line with our guidance. And that is about some of the things we've talked about today, which is we've loaded in a lot of our initial inventory for the Jack Daniel's Tennessee BlackBerry launch and our new distributors in the US.

I think we've said this morning that our own performance is getting better. So, you know, congratulations to the teams for that. But, um, I honestly don't think the environment has changed that much over the last quarter in terms of a structural cyclical argument.

Operator: That should now begin to normalize in our second half and look like something that is more traditional for the back half of the year. We'll begin to comp New Mix from last year. We're not at a point yet with the volatility we have and where we set, but we are very pleased that our half-year results have come in kind of in line with our expectations. In the interest of time, we're concluding this Q&A session. I would now like to turn the call back to Sue Parham for closing remarks. Thank you. Thank you to Lawson, Leanne, and everyone for joining us today for Brown-Forman's second quarter and H1 fiscal 2026 earnings call. If you have any additional questions, please contact us.

That should now begin to normalize in our second half and look like something that is more traditional for the back half of the year. We'll begin to comp New Mix from last year. We're not at a point yet with the volatility we have and where we set, but we are very pleased that our half-year results have come in kind of in line with our expectations.

To continue to moderate and to come in line with our guidance. And that is about some of the things we've talked about today, which is, you know, we've loaded in a lot of our initial inventory, for the Jack Daniels, Tennessee Blackberry launch um and our new distributors in the US that should now begin to normalize in our second half. And look like something that is more traditional for the um the back half of the year and we'll begin to comp numix um from last year. So we do, we're not at a point yet with the volatility we have and where we set but we are very pleased um that our half year results have come in kind of in line with our expectations

Operator: In the interest of time, we're concluding this Q&A session. I would now like to turn the call back to Sue Parham for closing remarks.

Sue Perram: Thank you. Thank you to Lawson, Leanne, and everyone for joining us today for Brown-Forman's second quarter and H1 fiscal 2026 earnings call. If you have any additional questions, please contact us.

And in the interest of time, we're concluding this Q&A session. I would now like to turn the call back to sue Pam for closing remarks.

Operator: With the holiday season upon us, we hope that everyone celebrates the season responsibly and that your spirits are bright. From all of us at Brown-Forman, we wish you the happiest of holidays. With that, that concludes our call. This concludes today's program. Thank you for participating. You may now disconnect.

With the holiday season upon us, we hope that everyone celebrates the season responsibly and that your spirits are bright. From all of us at Brown-Forman, we wish you the happiest of holidays. With that, that concludes our call.

Thank you. And uh thank you to Lawson and Leanne and to everyone for joining us today. For brown Foreman's, second quarter and first half of fiscal year 2026 earnings call. If you have any additional questions, please contact us.

Operator: This concludes today's program. Thank you for participating. You may now disconnect.

With the holiday season upon us. We hope that everyone celebrates the season responsibly and that your spirits are bright from all of us at Brown Foreman. We wish you the happiest of holidays with that that concludes our call

And this concludes today's program, thank you for participating. You may now. Disconnect